It’s been a tough year for many retailers, and for those who have not shuttered doors, the focus has been to drive topline growth — which includes making heavy investments in technologies and infrastructure to improve customer engagement, increase conversions (online and in-store) and maintain loyalty.
But focusing solely on driving sales has had a big impact on P&L statements — especially cash flow.
In a research report from David Bassuk and Joel Bines, managing directors at AlixPartners, the authors note that 2020 has been one of the most challenging years for retailers in recent memory. In the U.S. alone, there have been 29 retail bankruptcies and about 25,000 store closures. The COVID-19 pandemic swooped in early this year, and Bassuk and Bines said companies were caught off guard, adding that a “mountain of difficulties this year came without giving retailers any time to plan or prepare.”
“These retailers hurriedly added a multitude of buying options over the last few months, including expanding delivery models such as curbside pickup and newer last-mile delivery partnerships, such as Instacart or DoorDash,” the report stated. “This wasn’t cheap to do. And expenses have also gone up for anyone doing business at the moment because of new cleaning and sanitization processes.”
Subsequently, retailers suffered lower profit margins on the sales they did manage to deliver, “either because of growing costs, sales and promotions hurting gross margins, or, in most cases, a combination of both,” Bassuk said adding that as a result, “retailers’ free cash flow has fallen off a cliff. Some of it is cyclical and driven by the pandemic. But a lot of it is structural and here to stay.”
In an analysis of cash flow and sales, the authors found that average cash flow fell 248 percent in the second quarter and over 115 percent in the third quarter.
In response, AlixPartners is urging retailers to adopt several tactics to stem the cash-flow bloodletting. This includes maximizing the use of fixed costs, making smarter use of the cash on hand, and prioritizing investments and business improvements.
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