The retail growth delusion

Amidst so much discussion of retail and hospitality businesses desperately looking to shrink (through store closures, CVAs or even administration) it is worth reflecting for a while on how they got too big in the first place. There is a cautionary lesson here for those brands which are currently small and fast-growing but which might be the ‘troubled retailer’ stories of 2025.

The psychology of over-growth is pretty easy to understand. You started a retail business with family or friends and found an audience. Your business grew and you built a management team around that growth. Now you have 50 or 60 outlets around the UK, you turn over nearly £100m and you are generating a decent positive cashflow from the business. What next?

There are plenty of people around with ideas about what that next step might be. Corporate finance advisors, dealmaking lawyers, industry analysts and potential investors are all telling you that you have a winning model and that you should double down. If 50 stores is a good business, what would 100 be like? Or 200?

It’s fashionable these days to blame Private Equity investors for a lot of the over-extension we’ve seen from retail businesses, and it is true that the PE investor naturally looks for step-change growth opportunities and will be much less interested in a ‘steady as she goes’ business. But I’ve seen plenty of IPOs in recent years where businesses sell their equity onto the public stock markets which are based on the same tantalising glimpses of step-change growth.

And before we comfort ourselves by blaming investors of any variety, how much press and analyst coverage of retailers begins with how many stores they have and how many new ones they have opened this year? It’s no wonder that growth becomes a beguiling topic for founders and business leaders.

And at some level, that might be a good thing – investing capital in a strong brand in order to make it bigger and take it into new markets can be very profitable, create many new jobs and bring the brand to lots of new audiences. I see brands in the retail and hospitality sectors which are absolutely ripe for that kind of expansion, even in today’s challenging markets.

But there are a couple of pitfalls that founders and early investors should watch out for:

1) Your growth plan might make complete sense to you, but if you are one part of an industry sector where everyone is chasing the same growth, you can’t all win. The Casual Dining sector is a salutary warning about what happens when everyone has the same ‘open 100 restaurants’ plan.

2) There is, obviously, a significant executional challenge in growing a business, and most particularly when that growth is into new territories overseas. Even though your business has grown already to what it is today, you may need different skills, resources, advisors and networks to take the next step.

3) Finally, there is the reality of your brand – can it actually stretch to the bigger scale you are considering. Brands based on design, or with particularly niche target markets or with strong regional roots just might not stretch to a bigger scale. Some of the high street CVA and restructuring stories emerging in 2019 look awfully like businesses which should have stopped at 50 to 100 outlets and have simply expanded beyond their market.

So is growth a bad thing? Not at all. But as a founder or shareholder in a business which is considering an IPO or a sale to a PE investor based on the allure of doubling your store-count, you are choosing to forgo the cash the business generates today and instead to invest some of that in the growth plan. Just like any other investment, it is worth considering that choice carefully.

Army jobs website delivered 52 months late

There is an incredibly important point in this article for anyone running a consumer facing business. I’ve seen a good deal of schadenfreude online about the Army being duped into spending £113m on a website – but let’s focus on the fact that the article states it was “three times budget – meaning it was budgeted at £38m in the first place. 5 minutes on the website tells you that it is basically a big wordpress site, which should have cost a few hundred thousand at best and taken a month or 2. Consider how that procurement decision is made, and it is obvious that part of the problem is that no-one making it understood what they were buying or what it should cost. Sadly, I see the same thing happening in retail and hospitality businesses all the time – a whole chain of executives from IT project lead to CEO who simply don’t know what they are buying, and an aggressive vendor who therefore has the information edge. There is a big club of high street brands that have made the same mistake the Army has, and we need to reflect on how to get enough digital knowledge into our businesses to stop it from happening. 

(Originally published on LinkedIn)

How the deep state is damaging your business

OK, it was early in the morning and I hadn’t had any coffee yet, but I confess to being particularly irritated by yet another reference in some political tweet or other to the ‘Deep State’ and its nefarious plans.

Concepts like the Deep State ruffle my feathers not because I believe there is some shadowy conspiracy at the heart of government, but for exactly the opposite reason. Let’s look at how a phrase like this comes into being. Continue reading “How the deep state is damaging your business”

On performance vs the market

There’s an important distinction between the performance of a business ‘relative to its market’ and the performance of that market itself. I recall a time in a challenging industry when I felt pretty good about delivering -6% growth because the wider industry was at -10%. We’d over-delivered the wider market and taken share from our competitors. Of course, regardless of the thrill of winning share, -6% will kill you in the end. Conversely, I found myself analysing a business the other day which is delivering +2% growth, but in a market which is growing at more than 10%. That business will be fine, I guess, but represents a missed opportunity too. There is one of those consultancy 2 x 2 matrices in here, isn’t there?  If you are under-performing in a bad market, you are certainly in trouble. If you are over-performing but also in a bad market, you might feel like you are doing all you can but the structural trend in the market can still undo you. Can you redefine your market? If you are under-performing a strong market, shareholders might be happy for a while but in the end strong competitors will come for you. Over-performing a strong market – beers are on you!
No alt text provided for this image

Does technology always help?

The tiny coffee shop at the railway station I use has installed what looks like a proper kitchen management system to facilitate communication between the till and the barista – in other words, between two people who are standing 3 feet apart.  As an inevitable result, confusion reigns, it now takes longer to get your coffee and more incorrect orders are made and wasted. I like computers as much as the next person, but are we too quick to try to eliminate all human to human interaction? After all, the lovely folks in the coffee shop are still more sophisticated information processors than the system that someone has put in to stop them talking to each other.

Machine Learning

Finally finished (and passed!) the Machine Learning course from Stanford on Coursera. Being plural makes it easier to find time to invest in personal development of that kind. Even as someone who has been on the client end of data science for a long time, there was plenty to learn from the course and nerding out doing the programming assignments was great fun. A technical course like that isn’t for everyone, but I can’t help thinking that there needs to be some kind of ‘what business leaders need to know about machine learning’ introduction – too many decisions about data and data science are being made right now by boardrooms full of people who don’t really understand what’s being discussed.  It wouldn’t be acceptable for a senior leader to confess that he or she couldn’t do maths or read. I suspect in a very few years it will be equally unacceptable to confess that you don’t understand data science or digital technology.  There’s a great training opportunity for someone there, I think. Does anyone offer that already?