Talking Shop

At the moment, the news is full of tales of woe from the traditional retail sector. Businesses are restructured, jobs lost, and store portfolios reduced. Almost 2,500 shops were lost from UK high streets in in 2018.

A standard part of the discussion is which are the most / least profitable locations, and which should be a priority for saving or jettisoning. Our experience in this sector is very similar, there’s no way to run a retail business successfully without a clear understanding of site-by-site contribution to the Group.

It’s surprising to me that other types of business often don’t have a similar level of knowledge of their own performance. That insight is into a middle layer of profitability, somewhere in between the micro individual product sales and the macro Group results. Call it business unit, division, service line or region, it’s present in all businesses in some way or another.  When business is good, there’s a tendency not to ask too many questions about the composition of that total performance. When things are tougher however, this layer of data is vital in pinpointing weaknesses and identifying areas in which results can improve. By way of example, we worked with a business which manufactured and then hired out assets. Analysis showed that hire was very profitable but was subsidising a struggling manufacturing arm. By reducing the scope of one, and investing in the growth of the other, the business saw significant improvement very quickly.

We meet a lot of companies where that level of analysis, or the taking of action on it, is missing, and that has some common causes.

Lack of information – if the business doesn’t think about itself as having different constituent parts, then it won’t capture information in that way. Missing or inaccurate information, or data in which there is no confidence is clearly unhelpful. A recent Forbes survey found that 84% of CEOs are concerned about the quality of the data on which they’re basing their decisions.

Creeping change in the business – the change to having a number of sizeable, distinct business units rarely happens overnight. More often it’s a gradual evolution, with investment or growth not distributed evenly across the business. The business can muddle along in this way for a long time without fully assessing the impacts of that change.

Lack of accountability– clarity on who is responsible for each division is vital. Yes, it might make the team feel a little less like one big happy family at times but that’s a small price to pay for addressing weaknesses. Middle management gets a bad name, but it does allow responsibility to be properly distributed.

Missing link between data and action – most businesses capture vastly more data now than they used to, but often it’s not assessed in a way that lets action be taken. Interrogating data as a tool to change future direction, rather than just a report on the past, can lead to more insight being gained. Kevin Plank, the CEO of Under Armour, says that “data is the new oil”, but this mindset isn’t as widely shared as it should be.

To return to a retail context, a good analogy is the department store – although it can be thought of as a single business under one roof, management will clearly understand how each department is performing and all the relevant trends. Pricing decisions are made, staff incentivised and floor space allocated to optimise performance based on this knowledge.

If your business is missing out on this insight, then it’s highly likely that better decisions could be made and better results achieved in the longer term. Next time a struggling retailer hits the front pages, hopefully the relevance can go beyond the high street.


Neil Grimmond
About the author

Neil joined Craig Corporate in 2005 and has been involved with both corporate finance and business management assignments. Corporate finance projects have ranged from diligence to...
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by Neil Grimmond