Closures In Retail Expected

A friend of mine sent me a link to a recent 2010 article by the Dominion Post about the typical trend of retail closures just after the Christmas period. i.e. January and February every year. Here is an excerpt from the article…

CLAIRE MCENTEE – The Dominion Post. Original article

"More retail closures could be in store following the rash of holiday receiverships. Several retailers were declared insolvent in January, including 10 Stax fashion stores, electronics store Eastern Hi Fi and Christchurch cycle shop Bike HQ. Three Wellington Mitre 10 stores were put into receivership shortly before Christmas."

"PricewaterhouseCoopers partner John Fisk said businesses that had struggled all year often capitulated in the face of holiday wage costs and a slowdown in turnover. Some retailers were thriving but many had been forced to swallow large rent increases, and there were likely to be some smaller ones hanging on and waiting for their leases to expire so they could close."

"Each insolvency was different – in the case of the Mitre 10 stores poor property investments by the owner were blamed – but a common cause was purchasing the wrong stock and being forced to discount it. ‘That puts pressure on the margins and it can be a slippery slope.’  KPMG head of restructuring and insolvency Shaun Adams said the holiday season was traditionally crunch time for struggling retailers."

So let’s review the main causes from this article and others that I’ve picked up in my business experience over the years:

  • Increases in rent in the New Year.
  • Staff wages costs over the holiday period : Overtime, annual leave pay, etc
  • Purchasing stock that didn’t sell well over the holiday period. Or overstock.
  • Having to discount heavily to compete with other retailers.
  • The sales slump that occurs from mid-January onwards after the Christmas and post-Christmas sales (The exception may be shoe stores that do well with Back-to-School promotions until the first or second week of February).
  • Having to commit to purchase $50k, $100k, $200k or more in stock for the upcoming winter season which puts a strain on balance sheets and bank accounts.

Sound familiar? In my next post I’ll show you some ways to counter these challenges for a typical fashion business. Stay tuned.

About the author: I’m Mark Fregnan, founder of Smart Fashion Marketing (Kinetic Media & Marketing) – an Australian consulting business that assists fashion retailers to increase sales and improve business value. Because we have a passion for marketing, our fashion business clients enjoy better store and label brand exposure, greater cash-flow and more time off to enjoy the finer things in life!