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‘Ensure financial agility and make your business model future-proof.’

A conversation between Henk Hofstede (sector banker Retail – ABN AMRO Bank) and Robert Spieker, Maarten Vaessen and Myrthe van Hoek (IG&H Retail), about how retailers can rebound from the Corona crisis.

Question 1: What are your most important observations on changing consumer demand in the retail sector, due to the Corona crisis? In Food Retail, as the weeks of hoarding in which we reached ‘Christmas peak results’ are gone now, we are moving to the new normal. The online sales channel is quickly growing, which results in capacity problems and fully booked delivery timeslots. Most slots are used by existing customers who buy online more frequently, since only 4% of the demand increase comes from new users. There are ample new opportunities in food retail. Specialty stores are expected to benefit from the crisis in the short term. Customers like to treat themselves and spend more on home consumption, since they are not able to visit restaurants. However, if the crisis lasts longer, demand will shift towards the value segment. Food retailers facing a decline in demand, are the ones partly dependent on customers from Belgium or Germany, I.e. at the borders of the country.

In non-food, we see a large drop in demand, especially in physical stores. Industry associations report an average drop in demand of 70-80% with stores. With fashion’s seasonal collections, the ultimate mix between postponed and revoked consumer shopping and buying is decisive. Problems occur for retailers who are both not able to get rid of their current inventory and need cash to plan- and buy for the next seasons. DIY stores and garden centers do well, they enjoy significant sales increases. This is also true for drugstores, since we all foster our personal health. Online in non-food is increasing by 20-40%. However, this increase typically does not offset the offline decline. reports an online share within non-food of on average 17%. The crisis accelerates online growth, not only for its convenience, but also because it is considered to be safer. Time to invest in the development of online channels. If not alone, then with partners or through platforms.

Retailer take-away: Put yourself in the customers shoes and make sure you have a thorough understanding of the underlying shifts from offline to online, between postponed and revoked consumption and between categories and price segments.

Question 2: Which scenario’s in terms of crisis length and impact do you currently foresee and how do these scenarios differ for the retail (sub)-sectors? ABN AMRO Insights, the economic bureau, currently foresees a crisis length of 3 months and a recovery of 3 months. However, implications of a crisis length of 6 or 9 months, instead of 3, are being studied. Therefore, we ask customers to make scenario projections of their liquidity, based on the base case (3 to 6 months) and stress-test and include darker scenario’s and timelines (6 to 9 months and beyond). We expect all measures to be quantified and agreed with key stakeholders such as government, banks and supply-chain. Of course, we will differentiate how we look at these plans depending on the retail sub-sector and the exposure to store versus online.

Retailer take-away:  At retailer board level, make sure you craft in-depth well thought through scenario analyses (3-6-9 months), including the impact on cashflow and liquidity, and revisit them at frequent intervals. All measures to be quantified, with stakeholder commitment.

Question 3: Due to the crisis, a lot of retailers are facing financial challenges. As for the credit applications you receive, do they mostly reflect financial distress or also retailers who are well positioned and looking for opportunities to invest to strengthen their position during this crisis? Almost all credit applications reflect distress, these types of applications are getting the bank’s full attention. The most distressed cases have priority, these include the retailers who will get in trouble within two weeks without further action taken. All clients of ABN AMRO automatically receive deferred payment of interest and repayments for the next 6 months, to strengthen their cash position. However, we need to stay realistic, in the end, we cannot rescue everyone. We need to be selective and decide whether the retailer’s business model is sufficiently future proof. Is the company in liquidity problems, as a result of the Corona crisis, or did it already have problems before the crisis? Confidence in survival of the retailer for the mid to long run, with support of the government, the bank and commitment of suppliers and real estate partners, preferably without firing people, is needed.

With capacity becoming available to move beyond handling the most distressed cases, we are eager to process credit applications that reflect opportunities that emerge out of this crisis. When we do so, we assess if the business model is future proof and resilient as well as past performance. In the end, every retailer needs to make sure its financial position is robust and in good shape. Do your homework well. If you conclude being short on cash, we jointly assess if and where the bank can help. The willingness is there, but we always need to check be resilient for the uncertainty the current future certainly holds.

Retailer take-away: Pro-actively develop an integral, future- and crisis proof plan and make sure you build-in financial flexibility.

Question 4: A lot of retailers end up with financial challenges – which can only be overcome together with real estate, suppliers and internal retailer stakeholders. How, from a banking perspective, to best resolve these challenges with the different parties involved? Closing the financial gap in this situation, is something you cannot do alone. You may need to involve government, suppliers, real estate. And, of course your bank.

Recent media discussions are focusing a lot on real estate. Retailers ask for a reduction in rent or even a stop, while real estate agencies have their own obligations towards banks as well. You do have to collaborate. If the owners of your store assets collapse, who is going to sublet the coming period? A “covenant” – a non-binding agreement – has been made by retailers and real estate companies, which advises real estate agencies to dismiss rent payments until the 20th of April. I think covenants like this are key, collaboration in the sector is a must. Other possibilities are deferment of payments or switching from monthly to quarterly based payments. All partners in your ecosystem are in the same game, you cannot just move the hot potato around.

Retailers must ultimately decide themselves how to close the gap. Cash is king in a crisis, but make sure you really reach and build commitment with your partners. You also need each other after the crisis. Last week, the media reported on credit insurers reducing the amounts they are willing to insure, implying wholesalers – who often already face uncertain demand – need to change their conditions. In other words, they expect their retail customer to pay more quickly. Of course, I understand these credit insurers, they have to reduce their risk exposure. It can be logically explained. If you want to prevent all of this from happening, then ultimately the government will need to also create a safety net under credit insurers. This week, the government announced that credit insurers will also be protected by government security, this will resolve this problem for now. Beyond this, there are also for example discussions taking place about the possibilities for a fund to support retailers that are future proof.

Retailer take-away: You cannot manage through the crisis by yourself. You must ensure commitment through collaboration and partnership within your retail sector with key strategic partners and competitors, including banks and government.

Question 5: How would you recommend retailers, who both face significant demand uncertainty and need to buy their merchandise ahead of time (e.g. due to seasonal buying), to make their buying and financial commitments at this moment in time? That’s a devil’s dilemma. Nobody knows what the situation will really look like in 3 or 6 months from now. A sold out or empty store will mean no revenues but having the wrong or too much merchandise put will put you in the wrong place also. Consumer confidence is critical, we need to see it recover. You need to look at smart buying, of course assuming you have the liquidity you need. Focus on buying the most current ranges, the runners and never out of stocks that will always sell. Lower your exposure towards more trendier ranges and collections. The role of buying will be more important and strategic than ever. You have to stay on the safe side, making the right agreements and commitments with your suppliers will pay off.

Retailer take-away: Smart buying now is more important than ever before, to make sure you can take the next hurdle through demand planning for uncertain fall 2020 and 2021 consumer demand.

Question 6: Before the crisis a lot of stores where already “under water”. The crisis causes a further reduction in sales per store, in the rebound we may not return to the level of sales per store we saw before the crisis. How do you currently look at the need to revisit the store network and footprint? Until right before the crisis we indeed already saw store vacancy increasing to 7%. A lot of retailers where facing downward pressure on store profitability, due to on- and offline competition, increasing price pressure and often by falling behind in much needed innovation. For some retailers the Corona crisis will be the final push into the graveyard of retail. Part of offline sales will come back, but not everything. We certainly project further online growth. Before the crisis we projected an online CAGR of 15%, we see this accelerate. The implication is that we will see further store closures. We jointly have to prepare for thickening urban shopping areas. Retailers once again have to revisit how their store format can differentiate and remain relevant with clear value added to the consumer. You have to include the 1.5-meter economy perspective. What can I do in a store, where we need to keep 1.5 meter distance, does it influence store lay-out and merchandising? What to change? We already see a lot of creativity and examples which will help adjust to this new reality.

Retailer take-away: Reconsider how your store format and store network can remain relevant in the 1,5-meter economy, focus on differentiation and value added and be creative.

Question 7: For many retailers the safety and health of their employees has become an important priority. However, at the same time personnel cost are now even higher as a share of overall business, as stores have reduced opening hours and traffic has fallen dramatically. How do you look at this, what are the implications? Both in business services and retail we see that healthy profitability is a result of a healthy company culture. Having the right personnel (customer oriented, with expertise and genuine interest in their customers) attracts consumers to the physical store. You should no longer regard personnel as a cost item, but rather as a source of revenue growth. Before the crisis, retail was facing problems to attract enough good personnel. A further rationalisation of the store footprint will take place in retail, hopefully the labour shortage will imply that people laid off will quickly find a new job in retail. This crisis will force us to look differently at the frontline, store personnel from now on. To give more appreciation and acknowledgment. Possibly, we may see pay increases. In the 1,5-meter economy personnel will be a differentiator and driver for revenue.

Retailer take-away: This is the moment for a robust plan and approach to develop skills, culture and align proper pay to retain and develop store personnel for the 1.5-meter economy.

Question 8: Looking ahead, do you see any major tipping points over time, that will cause certain types of retailers to no longer be able to keep their head above the water? The longer the crisis lasts, the more the consumer will shift away from the high end, more luxury segments. Groceries, clothing and home entertainment are in a good place, but other retail segments will be at risk. The crisis impacts employment and therefore buying power and income. Price consciousness will increase. It depends on the situation of each specific retailer, on their financial position and the type of merchandise focused on.

Retailers that have not been leveraged to the max and that still have financial muscle allowing them to take pro-active strategic and commercial decisions are advantaged. Financial viability and agility are decisive. Retailers that do not have this viability and are typically highly leveraged are at risk. They cannot handle headwind, they can only overcome their challenges by growing again. Which will be tough. The past couple of years we observed a sprawl of new retailers and formats. In the crisis, and in the rebound, a downward correction will take place. You have got to prepare yourself for all different scenario’s, not only the optimistic one.

Retailer take-away: Make sure you have both financial and commercial agility and resilience. Renew focus on the value segment and the value elements of your proposition including price, range, marketing communication and promotion.

Question 9: Which lessons can we learn from the Corona crisis regarding the retail business model? Dual sourcing. For example, we have become too dependent on China. Retailers need to shift their supply-base and perhaps move it closer to their base markets and reduce over dependency. It is not all about the lowest price, but also about delivery reliability and quality. Step up investment in long term relationships along the supply chain. Strengthen eco-systems with your partners, because as already said, you will need each other after the crisis as well.

Retailer take-away: Intensify supply chain / strategic partner cooperation, shift to more locally sourced and less centralized supply, and prepare for the new.

Question and conclusion of the conversation: If you could give one piece of advice to retailers – for both the coming weeks and the near term – to rebound from the Corona crisis, what would it be? Cash is King in times of crisis, but also do try to reinvent yourself at the same time. There are opportunities emerging all over, but decisions have to be made to stop or change certain activities and adjust elements of your proposition. The most important topics we discussed are future readiness, financial agility, creativity and cooperation in the supply chain with your stakeholders. Furthermore, it all depends on how fast we take control over the virus, how fast governmental measures are going to be eased and how fast consumer trust can be re-established. Prepare yourself for the new normal, for now we call it ‘the 1,5-meter economy’.

With special thanks to Henk Hofstede,

Robert Spieker Partner at IG&H E:

T: +31622791962

Maarten Vaessen Partner at IG&H E:

T: +31653571666

Author: Myrthe van Hoek (


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