McKinsey & Co., the world-renowned consulting firm, has published a lot of information about the field of retailing.
Most recently, McKinsey’s Peter Breuer, Thierry Elmalem, and Chris Wigley have written an in-depth piece on the need for many companies to engage in a retail turnaround (reinvention). According to Breauer, Elmalen, and Wigley:
“More than 50 retailers in Europe, the Middle East, and Africa have been in distress since the global financial crisis, and many are in distress today. Some are in denial about their situation; others are busy fixing the wrong problems. Over the past few years, sales growth at the top publicly listed European retailers has been a mere one or two percentage points above inflation; average EBIT margins have dropped to around 0.5 to 1.5 percent of sales. The short- to medium-term forecast doesn’t suggest any respite from these gloomy numbers. Changing consumer lifestyles and preferences, the Internet, and continued economic uncertainty are putting pressure on — and, in some cases, causing financial distress among — many traditional retailers.”
“There are broadly two types of distressed situations a retailer can face. One is a cash or liquidity crisis, requiring immediate cash-management and debt-restructuring measures. The other, which is trickier to detect, consists of a set of issues that may not threaten immediate bankruptcy but pose fundamental challenges to the sustainability of the business model. In this article, we discuss how to recognize —and emerge victoriously from — the second type, an undertaking we refer to as a ‘distressed turnaround.’”