What small businesses can learn from Woolworths’ business failure

The contraction of the retail sector has presented problems for a wide range of businesses. Woolworths, that most talismanic of British chains, felt the strain perhaps the most acutely and has ceased to trade altogether. Many others are scaling back their ranges, reining in spending, and concentrating on evergreen product lines that they believe will offer steady, predictable returns.

Retail opportunities for SMEs and how to make the most of them

It is easy to be overwhelmed by the constant torrent of disastrous figures in papers and on the news. However, it is important to remember that the retail sector is not dying. Rather, the economy as a whole is going through a trough in its cycle. When a company cuts back or fails altogether, this is obviously unpleasant for those involved. However, these events also represent an opportunity for enterprising, agile small and medium sized businesses (SMEs) willing to take on a challenge and hungry for new revenue streams.

Take Woolworths as an example. Just two years ago the retailer had an annual turnover of £2.7 billion. This is now an open revenue stream - a stream which smaller retailers should be looking to direct their way. Woolworths satisfied a number of consumer needs; where else, for example, can you pick up machine dye on the high street? Exactly. These needs still exist, and consumers are looking for new providers.

Established retailers will leave behind a massive market niche if they fail, or if they choose to stop offering certain lines. It is up to smaller businessses to fill these niches. SMEs are particularly well placed to perform this task; in contrast to huge lumbering corporations, managers at a well-run SME will frequently be the key decision-makers - because they will frequently be the business owners. This means that small businesses can move and adapt quickly to seize new business opportunities.

There are a few key steps to consider in order to minimise the risk of missing a valuable retail opportunity.

Learn to spot a genuine opportunity

Before deciding whether or not an opportunity is worth pursuing, you need to be able to assess whether or not it is actually an opportunity at all. Why does this niche exist in the first place? Or, perhaps more pertinently, why has the existing provider failed?

There are a number of potential reasons for a retailer’s failure. It is possible that the company was simply inefficient, and lacked the management skill necessary to maintain a viable business. It may also have failed due to reasons beyond its control, but not related to the quality of its products. Consider the fate of entertainment retailer Zavvi. It was forced into administration as a result of the Woolworths collapse, as Woolies owned its biggest distributor. Zavvi was not selling an inferior product to that offered by, for example, HMV (although many would suggest that their pricing was unrealistic); ultimately, they failed as a result of events against which they could not possibly legislate.

It is vital that you are able to spot when a provider has collapsed through sheer lack of consumer demand. These are the cases that do not represent real opportunities. A retail business relies on sales, and if there is no consumer demand, you too will fail. On the other hand, if the previous provider collapsed as a result of inefficiencies or mismanagement, and there is a proven market being left behind, you might well be on to a winner.

Make preparations to move quickly

Starting now, you should look carefully at the structure of your organisation. How streamlined is your business? Can you make assessments and decisions quickly and effectively? If not, why not? A Woolworths in Balham has already been replaced by a 99p store, a mere three weeks after its closure. The 99p store is selling virtually the same stock as was offered by Woolworths, meaning that it has identified a genuine opportunity, decided to pursue it, and taken the necessary steps to secure the potential revenue stream in less than twenty-five days. You must ensure that your business is in a position to do this, even if it is on a much smaller scale.

Expansion and acquisition will obviously require cash. As such, you should ensure that you have a scalable finance solution available to you in advance, ready to be drawn on when a suitable opportunity arises. Factoring and other forms of asset based finance can be particularly effective for the purposes of expansion; if you are interested in this type of finance, you should ensure that you have a sound relationship with a provider before you actually need to call on them.

Be prepared for a fight

If you have identified a genuine opportunity, there is a high chance that a competitor, or, indeed, a larger retailer, will be looking to fill the same niche. If you have done the necessary groundwork, there is no reason why you shouldn’t be first to seize on this new opportunity. However, holding onto your revenue stream could well be a struggle, particularly if you are faced with competition from a much larger organisation.

In order to minimise this risk you should find your unique selling point. Consider what it is that draws customers to your business, and build on this. You should also concentrate on providing as high a level of customer service as possible; this is frequently lacking in larger organisations, and can be the key to customer retention for SMEs.

The current downturn is making life very difficult for some retailers, and will continue to do so for some time yet. However, while many companies are feeling the strain, others are able to flourish in challenging market conditions. Making sure that you can identify and capitalise on new opportunities will help your business thrive while others flounder, and will ensure that you are on the front foot when the economic skies clear.