Fixing Supply Chain, Service Issues Are Key To Post-Chapter 11 Survival For Retailers--Research by Clear Thinking Group shows that 70% are ultimately liquidated or acquired

Furniture World Magazine

Before a retail company deems itself ready to emerge from Chapter 11 bankruptcy protection, its management and consultants must ensure that supply chain and service issues alike have been thoroughly addressed. Otherwise, the potential for long-term survival is virtually non-existent, warned veteran retail executive and consultant Jim Welty, chairman of turnaround consultants Clear Thinking Group. Indeed, according to research conducted by the Hillsborough, N.J.-based firm, of 141 retailers with annual sales exceeding $100 million filing for Chapter 11 between 1990 and 2002, only 19 (or 14%) have successfully emerged without a change in control and with virtually the same store count and distribution network in place as when they entered the bankruptcy process. The vast majority of these retailers, 99 (or 70%), were eventually acquired by other companies or had significant assets liquidated. According to the firm, it is still too early to determine whether the remaining 23 (or 16%) will survive. “While poor leadership and management, inflated egos, and a lack of ability to execute rank among the reasons so many operations eventually fade away after emerging from bankruptcy, neglecting to remedy real operational problems during the Chapter 11 process constitutes an even stronger catalyst for failure,” said Welty, whose 25-year career includes positions as national partner for KPMG’s Consumer Markets Consulting Practice, president and CEO of the Garr Consulting Group subsidiary of Deloitte & Touche, and senior management positions at retailers Ayres and Gimbel’s. “Companies focus on the balance sheet, cash flow, financials, and real estate, while failing to correct the issues that got them (to bankruptcy status) in the first place,” he continued. “In many cases, these companies have poorly developed supply chain and customer service processes. Few have maximized the use of technology to drive these processes. With all the Y2K and ERP hype of the late ‘90s, less than 50% of all consumer marketers have unlocked the power of technology to help drive their supply chain.” Re-thinking the planning and management of inventory through merchandising, distribution, and systems constitutes an essential step for companies striving to remain in business long after they have shed their Chapter 11 status, he advised. Management of inventory flow is a shared responsibility across the merchandising, operations, finance, systems, stores, and distribution functions. Accordingly, an entire organization may suffer as each group strives to optimize operations within its own area, Welty noted. “That is why we encourage companies to benchmark_not only in their industry, but also outside of it. Also essential, he said, is putting into place a Profit Improvement Committee (PIC), whose directives should be continuously executed to grow the bottom line. What’s more, retailers wishing to remain viable well beyond bankruptcy filing must strive to make their mark from a customer service standpoint. “Many retailers are trying with greeters, kids’ buggies and other attempts to make shopping a friendly experience,” he noted. “But they may have forgotten the 35 non-selling functions that help drive service, from clean, well-lit stores to knowledgeable personnel. When 25% to 30% of one’s business is done on the weekends, but payroll is less than 20%, it is difficult to provide winning service.” Kmart and other merchants looking to emerge from Chapter 11 in the months ahead must do so against the backdrop of a sluggish U.S. economy, and an over-stored retail environment rife with players who sell similar products and lack sufficiently innovative items to generate impulse purchases. Given those conditions, Welty asserted that only those companies that have gone back upstream to remedy supply chain and service difficulties possess a real chance for long-term survival post-Chapter 11. “Wal-Mart, Walgreen, Coca-Cola, Dell, GE, and others have figured this out_and will continue to win whatever the market conditions,” he concluded. Clear Thinking Group, Inc., a subsidiary of Liquidation World, Inc. (TSE: LQW) Calgary, Alberta, provides a wide range of corporate turnaround, workout and strategic consulting services to retail companies, consumer product manufacturers/distributors and industrial companies—often on behalf of asset-based lenders that finance these entities. The national advisory organization specializes in assisting small- to- mid-size companies during times of strategic change, opportunity, growth, acquisition, and crisis. For further information, visit the firm’s website at www.clearthinkinggrp.com