Mary, Mark and Anette are in a partnership operating in the highly competitive retail sports sector. Mark, the more recently admitted partner, has been in the business for some 10 years, where Mary and Annette have been together for well over 20.
Mark looks after the financial and administrative detail. Mary has a strong relationship with a number of schools and sporting associations and manages their sporting requirements. Annette on the other hand is a runner and takes care of all the merchandising, staff training and ensures sporting apparel and equipment meets standard.
The business has a large footprint operating five stores in regional New South Wales. Its flagship store is in a major capital city, in a strong location. Recently however, the big brands have arrived. Nike and Adidas now have flagship stores in the same location, indeed have established discount stores directly across the road from them.
The one point of difference is their broad range of retail items; essentially a one stop sporting retail outlet. They retail running shoes, football, soccer, baseball, basketball and cricket shoes to gym equipment, apparel, specialist apparel, watches, weights, boxing gear, archery and water sports equipment and toys. The complete sports shebang. Anything associated with sport, this business has it.
Mark has also been successful in establishing an online presence, a website site which deals with all of the online inquiries and purchases made by customers. Goods are dispatched from a central warehouse then to either the five regional centres for collection by customers or, for an additional fee, direct to the customer.
The retail sector has been experiencing high levels of competition, including the impact of digital with strong online presence where location is not important and price is the player, to major global players coming to town and of course massive sales or discounting.
I met with Mark. Astute. Always thinking of options. He summarised the position well ‘competition is really tough. In fact, if it wasn’t for our regional stores where the big brand globals flagship stores do not exist, we would be sunk. With more competition and our buying power being down, our margins have fallen away. Plus there are more specialist stores. Football, ski, surf, running stores, each taking a piece of our business away’.
Unsurprising, retail is now an industry at risk and Mark has advised that after banking with one of the major banks for over 25 years, the bank has decided not to renew their loan facilities. ‘Can you believe after being with the bank for more than 25 years and not one default, not one payment in arrears, our tax and super up to date, they have given us a six month window to deal with changing banks’.
‘I can’ I said. ‘One of the issues you face is that your personal home loans are also with the same bank and these loans are being serviced by the same one business. Given retail is a risky industry sector at the moment bankers are nervous’.
After an initial meeting, we had fleshed out the usual three options, stay the way they are and fight through the competition, sell their business, or attempt to restructure. Retail is an interesting industry, as I explained to Mark, you either have to be competing on price, which is why the majors have entered into discount retailing to capture that side of the market and try and win loyalty, or you operate at the other spectrum, high value, specialised end of the market, narrow and deep.
Playing in the middle is a losing strategy. ‘You Mark are playing in the middle’ I said ‘and in the end, you will lose. Also, your online store is a form of competition. You can run major sales through your online store but if you’re selling these items in-store then they are offered at the same discount price as they are online and this would be across all your stores, you don’t pay rent online so this strategy needs to be reviewed’.
In the end, a hybrid strategy was adopted. Sell-off a couple of the regional stores that weren’t significant profit makers. ‘These stores added to the inventory holding meaning money was held in stock for too long. Also, play the game, split the business into a low cost provider of common sporting goods and items and specialise in one sector of the sport market’ I suggested.
Mark had a passion for cricket. So cricket was the sport chosen. This meant the store layout would need to change making way for an indoor cricket facility so that customers could experience the use of cricket pads, shoes, facing a bowling machine and playing shots. The appointment of a cricket professional that would look after equipment, breaking in cricket bats and other equipment and repairing players’ favourite bit of kit. Annette trained staff on how to upsell when clients were in store.
This was a success. No one else was doing this in their location. The big brands couldn’t compete at this level.
At the same time personal housing loans were refinanced. This reduced the bank’s risk. The bank took comfort from Mark’s regular open dialogue. So much so the business banking relationship still exists.
The sale of the two regional stores were completed which refloated the business enabling the cash to be used to help refurbish the stores with the flagship cricket centre using most of the funds. The sale also assisted with some debt reduction.
The online store was reinvigorated, one off items, bundling and specials. Data was cleansed and used to assist in direct marketing. Personalisation was enabled. A history of what was purchased by who and when enabling personalised servicing. This was Mary’s space.
Mary, Mark and Annette are still in business.