While it’s no surprise that middle market retailers were hard hit by fallout from the COVID-19 pandemic, proprietary RSM data underscores this vulnerability.
Four ways retailers can address business continuity post-COVID 19.
Some 44% of U.S. retailers lost domestic revenue because of the pandemic, while nearly half experienced disruptions to U.S. operations or production, according to a special industry oversample included in the proprietary second quarter RSM US Middle Market Business Index, a quarterly measurement of middle market business sentiment.
The oversample—fielded April 8 to April 23, 2020—included 416 executives in four industries, including 109 in retail. An oversample adds people to a particular survey category to improve the data’s reliability.
One key data point highlighted a potential opportunity for retailers as the initial COVID-19 outbreak slows: Some 80% of the retail respondents said they did not have a formal business continuity plan that outlines the procedures and instructions to be followed if an unanticipated event such as a pandemic interrupts their normal business operations. Even worse, of those that did have a formal plan, 50% were only somewhat familiar, or not at all familiar with that plan. That was higher than the other industries polled.
There is a clear need for better planning. This is a lesson middle market retailers can learn from as the country moves toward reopening. While states are slowly allowing businesses to open under certain restrictions, much uncertainty related to what the short- and long-term outlook will be remains.
If the United States experiences a resurgence of rolling outbreaks, or worse, a second wave that is equivalent or more severe than the first, retailers should be prepared. There is no way to completely eliminate the economic fallout, but being prepared can make the difference between closing doors permanently or emerging on the other side.
Here are four considerations for middle market retailers to address business continuity that don’t require a cash investment:
- Maximize existing technology functionality – Among RSM consulting clients, we consistently find that companies are not maximizing the capabilities of their existing software applications. A very small investment in training can result in significant efficiency gains.
- Forecast multiple scenarios – With so much uncertainty, it’s critically important to forecast multiple scenarios in the short- and intermediate-term.
- Consider recapitalizing or reorganizing – Retailers should consider whether or not recapitalization can create the liquidity to help get through the pandemic. No one likes to use the “B” word. However, if other options fail, many retailers have successfully reorganized and emerged stronger. If one of your forecasted scenarios makes this a possibility, planning early can make for a faster and better process.
- Consider an acquisition – Some retailers that entered the recession with strong balance sheets and were able to remain in operation, either as an essential business or through an e-commerce focus, may have significant opportunities for acquisitions. The unfortunate reality is that many retailers will not survive the economic fallout. Those with the financial means should identify potential acquisition targets that could position the company for long-term growth.
For more information on how the coronavirus is affecting midsize businesses, please visit the RSM Coronavirus Resource Center, and read the full MMBI Q2 report.
