Retailers need an entrance strategy

We have been hearing loud calls for economic activity to be quickly resumed for several days now. People are hoping that all the shops will be allowed to reopen at the beginning of May, although they will be subject to strict hygiene and social distancing rules.

Many shopkeepers have been forced to stay at home for more than five weeks, often without being able to generate a single euro of income. The government’s support premiums and the disappearance of monthly costs for staff and suppliers offer hope that the financial backlash will have been limited for most of them. However, just as footballers want to play real matches, shopkeepers want to do business. As soon as the ban is lifted, we can expect many retailers to start back up at full strength.

The most important thing every entrepreneur needs to ask themselves is whether they can reopen profitably. After all, once the shop doors are open again, the costs will return. To do profitable business, income obviously needs to be higher than costs. The big question is whether this will be possible as soon as shops reopen.

Will customer numbers be as high as they were before the shops were forced to close? This seems highly unlikely. Besides the fears that consumers may have about mingling with other people, limitations may be imposed on shopkeepers concerning the maximum number of customers allowed into their shops. The result will be a drop in income.

That means it is crucial to compare the expected income to the costs of reopening. If this reveals a structural imbalance, with income below the level of costs, shopkeepers would be shooting themselves in the foot. Liquidity problems may arise in the short term, perhaps leading to insolvency. That is why, while the government is implementing a clear exit strategy, shopkeepers should come up with their own ‘entrance strategy’ to avoid imbalances of this kind.

Not starting back up at full strength might be part of this strategy. That could involve adopting a ‘wait and see’ attitude and trying to restart with fewer staff and a smaller product range. That will considerably increase the chance of generating more income than costs, and thus making a profit.

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