retail news in context, analysis with attitude

Good column by Luke Johnson in the Financial Times in which he argues the following:

“The statistics say the economy is down just 5 per cent from its peak. From where I sit it feels a lot worse. Most companies I know have seen revenues fall by anything up to 20 per cent – and for a few the decline has been even more savage. No one I talk to can remember a tougher time to be in business.

“So what can you do when your top line gets eviscerated? First of all, you cut costs like a dervish – just to stay solvent. But you cannot maintain that survival mentality forever. At some point every organisation has to progress or disintegrate. And in shrinking industries, for most businesses there is only one way to expand: you have to take market share.”

The logic is simple. You can’t save your way to prosperity. While you have to get more efficient during an economic downturn, increased market share can more than make up for increased costs…and can actually rationalize those costs so they represent a higher ROI.

Johnson writes:

“It takes bold vision to assume the additional risk of such manoeuvres in this ferocious storm. We may be too early: the downturn could get even bloodier. And there are plenty of us who have been battered and worry that we might have lost our nerve. But I believe now is the time to consider recharging the entrepreneurial batteries, and take the chance to consolidate – if you have the confidence, the cash and the people.”
KC's View:
Johnson doesn’t use this example, but I would argue that this is precisely the game that Walmart is playing right now, as it makes market share a primary recessionary goal.

This column is spot-on. If a business isn’t looking for new opportunities and raising the bar on its own operations, even in a recession, then it is accepting the possibility or even the likelihood that the competition will do so and leave it behind.