The 2024 Australian Retail Outlook is out now. This must-read resource is packed with exclusive insights from Inside Retail’s survey of retailers about their performance, plans and predictions for the year ahead; trend analyses and advice from industry experts; and interviews with leading retailers, including Ikea, Lush, Outland Denim, Milligram, and many more, about their growth strategies in 2024 and beyond.

To give you a glimpse of what you can expect from this year’s report, we are sharing selected articles over the coming weeks. Be sure to download the 2024 Australian Retail Outlook to discover more.

A perfect storm of the rising cost of doing business and falling consumer spending is likely to weigh on the fortunes of some discretionary retailers in 2024.

Sometimes, sales and margin underperformance happen quickly; on other occasions, it takes a while for management to realise they are trending downward.

Rule 1: ‘Houston, we have a problem’

When a business is financially challenged, time is of the essence.

The first rule for managing a turnaround is acknowledging the performance problems early enough, rather than at the 11th hour, when there are few cards left in the deck to play.

Owners, boards and management teams too often struggle to step back to look at the bigger picture of what is going on and remain stuck in the day-to-day business operations, or remain attached to a strategy that isn’t working.

That is why it is essential to do a hard reality check as early as possible and have a realistic and current assessment of the business’ actual financial position (cash flow, P&L, balance sheet) and its forecast performance looking forward.

Rule 2: Taking the lead, winning confidence

The second turnaround rule lies in genuinely understanding the management team’s capability because it doesn’t matter how good the plan is if you simply don’t have the right people to get the job done.

The challenge here is that leading any business through a turnaround requires the confidence of key stakeholders that the board and management team are up to the task.

Initially, the most important stakeholders are your employees. And in a crisis, the best talent will always leave unless they have confidence in the business leadership and believe the turnaround can be achieved.

After that, it’s all about building trust with your external stakeholders, who may be inherently sceptical about the prospects of success.

Rule 3: Hope is not a plan

Retail turnarounds don’t just happen. They demand a diligent approach to the strategic and tactical initiatives that will drive the future performance of the business. This includes understanding the customer, challenging the relevance of the business core value proposition, and identifying the operational levers to improve profitability, cash flow, and enterprise value over time.

The guiding principles of turnaround planning are:

• Define success: All turnarounds are different, and success is always contextual. Be realistic about what is achievable, over what time frame, with the working capital available. Also, understand clearly what your stakeholders want. Their interests and yours may not be the same.
• Leave no stone unturned: No one has a monopoly on good ideas. Often the best ideas (and the easiest to execute) come from the shop floor. You just don’t know until you ask.
• Keep it simple and be ready to pivot: Make and keep promises that are simple and realistic. Don’t develop a plan A without a credible plan B, C, or D.
• Managing stakeholders is hard to do: Sometimes you will need to hire an independent, credible adviser who can verify that your turnaround plan is realistic and that the business can execute it.
• Other people’s money is expensive: Cutting costs, improving margins, and releasing cash from working capital are always cheaper than distressed debt/equity. However, sometimes a distressed debt investor is a smart play to fund a turnaround plan when other options don’t exist.
• Don’t let ‘perfect’ get in the way of ‘good’: Few businesses achieve 100 per cent of their turnaround targets. It’s often about demonstrating positive momentum to build stakeholder confidence and create shareholder optionality.

Rule 4: Know when to fold ’em

Unfortunately, the best-laid turnaround plans don’t always work.

Australian corporate law places directors at risk of personal liability for insolvent trading if the business ultimately collapses into liquidation. This means directors should remain contextually aware of the business performance and the viability of the turnaround plan at any given point.

Australian Safe Harbour laws offer some protection to directors undertaking a turnaround, provided the plan is independently assessed as more likely to result in a better outcome for creditors than a liquidation.

By James Stewart, National Leader, Consumer and Retail, KPMG Australia; Gayle Dickerson, Partner, Deals, Tax & Legal, KPMG Australia; and David Hardy, Partner, KPMG Australia.

This story first appeared in the 2024 Australian Retail Outlook.