Given the unprecedented market conditions, mostly resulting from Lockdown, the impact has been so great that history is no longer reliable as a basis for predicting future performance.
Lockdown was essentially a way of culling businesses and trade sectors that were way past sell-by, accelerating negative and positive trends already in place… In practice, businesses teetering on the brink were pushed over the edge, whilst at the same time online businesses experienced an acceleration of development, achieving six years growth in twelve months. These factors, added to consumer and government unpredictability, have made it impossible to rely on traditional methods, such as last year’s forecast, ‘plus a bit’. Obviously, we cannot risk not having forecasts, but instead we need to evolve pragmatic ways of arriving at realistic approximations based upon gut feel…
In the past year, the key priorities for companies have been survival and growth. Essentially, survival has been about a realistic return to basics, clarifying and redefining the business we are in, re-formulating a business model based on a realistic match with consumer need, a degree of relative competitive appeal and a willingness to deliver more than it says on the tin, every time… In other words, acting as if we are re-entering a market for the first time, albeit with the benefit of some hindsight and a tight focus on financial performance. Companies that had the courage to then cut-to-fit, adapting their resources of Time, Money and People to fit new levels of lower demand, were able to gain some breathing space.
Meanwhile, a combination of taxpayer-funded ‘payment breaks’ in terms of business rates, VAT and interest payment holidays, coupled with furlough-funding, became but temporary life-support for rivals already past sell-by. These weaker companies, unable to cope with massive and unprecedented changes in business practices, consumer lifestyles, shopping behaviour, disposable incomes and spending power, weak companies have succumbed, whilst marginally healthier rivals have been able to grow at their expense via acquisition and organic development.
In practice, until we eventually return to the relative comfort of an era when forecasting to three places of decimals was possible (or even useful), we are faced with the problem of coping with a combination of worst-case, best-case and probable in arriving at a range of sales forecasts that help us to move forward.
However, coping with this degree of forecast spread in business means incurring the additional cost of buffering in terms of extra stockholding and spare capacity. The scale of this buffering will reflect our corporate and personal risk-profile in terms of being risk-seeking, risk-averse or risk-neutral. Incidentally, having survived Lockdown, we all realise that being risk-averse is not an option. This additional cost of buffering will have to be factored into our pricing models…
In practice, our starting point must be the consumer. Think post-Lockdown emergence of a super-savvy individual, uncertain and insecure, but unwilling to accept anything less than demonstrable value for money. That consumer has been subjected to twelve months of social distancing sales-resistors, affecting their shopping behaviour both on and offline. Our major customers come next. Our skill in assessing how well each of the mults and other significant customers are emerging from the equivalent of a one-year World War III, without the bloodshed, will drive our future profitability… (If you are in any doubt that universal Lockdown has been that traumatic, please check through your copies of NamNews since March 2020).
This degree of change affecting your markets has to result in fundamentally altering the basis for determining whether a major customer is Invest, Maintain or Divest. In practice, this means combining your knowledge of the customer as a business with soon to be announced latest annual reports showing the real impact of 12 months Lockdown on individual retailers. And don’t forget wholesale as the only route to optimising local convenience growth.
Finally, it is worth keeping in mind that whilst most of us have been educated to optimise profit on growth, the new norm requires skills in maximising the profitability of declining revenues and reduced demand in an environment of great uncertainty. In effect, we must try to make the abnormal normal and attempt to optimise the chaos via a lens of pragmatic realism. In fact, if our business world in 2021 seems in any way ordered, we are probably not looking at it properly.
We leave you with a key message: Have the courage to take a personal stance on market assumptions that affect you, apply them in your forecasting models and go for it….
