Thrive in 25 - a new series
Maintaining profitability when sales are slow and costs are growing
Back in the lunatic days of the late 90’s when you could boost your share price by adding ‘dotcom’ to the end of your company name, I remember expressing my scepticism about some of the stranger business models doing the rounds by coining my ‘generic business strategy’. This was simply that the universal rule of business success was “have revenues higher than your costs”.
To be fair, the world of digital business ‘unicorns’ has continued over the decades to challenge that model, with huge valuations ascribed to businesses that don’t appear to generate much return at all, but for most of us mere mortals the generic business strategy remains a sensible starting point. If you can generate more return (specifically cash) each year than it costs you to operate your business, then even if you don’t get rich you won’t go bust.
The issue is that for many businesses what seemed like such a simple strategy 3 decades ago has gotten harder and harder to actually deliver.
Looking at retail trading performance over the key Christmas period underlines that. By and large, most retailers I speak to will report that they have done more business but from fewer customers. They’ve increased pricing, sold better, converted harder and marketed more effectively but done so in a market where a lot of consumers simply didn’t turn up.
The problem with that, of course, is that it is a game not everyone can win, and the inevitable result is a visible widening of the gap between those businesses which are ‘winning’ in the market and those which are being left behind.
Even for those businesses which are apparently doing well, though, life is not easy. Those ‘top of the league table’ Christmas trading reports only talk about revenue, for example, not about gross margin or costs. And many of those businesses which appear to have done well will have invested heavily in promotions and discounts in order to ensure that they attract those remaining customers. Expect a raft of company announcements this year saying “we did well and grew market share, but have made the same or less profit than last year”.
So it is tough, in the current climate, for everyone in retail, hospitality and other consumer facing sectors. Simply achieving the ‘revenues higher than costs’ mantra seems increasingly difficult and with more cost increases coming this year from taxes and minimum wage increases that seems like it will be true for a while.
So, whether you are an independent sole trader, or a multinational chain, what can you do in such a tricky environment to stay afloat and even grow?
Understandably, the first tools most businesses will reach for are the ones they know well. They will try to renegotiate terms with suppliers to boost margin. They will tinker with merchandising and product mix. They will reformulate product where they can (look for your restaurant meal to get even smaller this year for the same price) and they will try to further optimise pricing and promotional strategies.
There is only so far, though, that these tools will take a business. That’s especially true for smaller retailers and independents, who have less bargaining power and fewer whizzy AI pricing models to play with.
So where do you go next? What else can you think about doing that might support your business through a challenging 2025?
Answering that question is going to be the mission of the next few editions of Moving Tribes. Drawing from best practice in consumer businesses large and small, we are going to explore some of the ways you can bring more customers through your door and sell more effectively to them when they are there. We’ll try to take some concepts that are familiar from abstract discussion at conferences and consider how to make them practical and achievable in a real shop or restaurant.
Along the way I’ll be seeking your feedback and input, and listening to the discussion the posts create. Together, we can create a repository of practical ideas that can be useful for any High Street business.
Strap in, then, for what I hope will be a creative and helpful few weeks at Moving Tribes. If you have colleagues you’d like to be part of the journey, this is the time to tell them to subscribe (for free) to get these posts directly. I’m also going to be writing these posts with independent retail specifically in mind (no massive IT projects!) and so if you are connected to your local High Street community I’d love you to share this post with them in particular.
Starting next week, then, our “Thrive in 25” series will begin with a pragmatic look at a concept which is often talked about but rarely put into practice - Experiential Retailing.
See you next week.