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Retailers in Canada Need to Evaluate Cashflow Situation to Survive: Expert

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As Canadian small businesses and retailers are in the fight for their lives, a well-known retail expert says you never go out of business for having too much cash.

Antony Karabus, CEO of HRC Retail Advisory, based in Toronto, said the number one factor that is going to separate the retailers that are successful coming out of this COVID-19 induced economic crisis from the retailers who are not successful will be their balance sheets.

“It will be the cash flow they have. The access to liquidity and what they do about managing their inventory,” said Karabus.

Antony Karabus

HRC Retail Advisory is a leading Retail Strategic Advisory firm that is focused on assisting retailers to more profitably compete in the increasingly complex and competitive digital retail environment. HRC works with retailers to redesign their organization and internal processes and tools, enable them to most profitably succeed in this time of retail transformation.

The company says its mission is to help retailers stay ahead and profitable in a rapidly changing retail environment.

“The more cash flow they have the more likely it is they can endure through the one, two, three months of no brick and mortar revenue,” said Karabus.

“There’s been reports in the U.S. of department stores that have between five and eight months of cash flow on hand. And they’re saying the guys who have eight months will probably make it through. The guys that have five months with the cash on hand or liquidity on hand are going to be touch and go.

“I think the biggest issue to come out of this is managing the balance sheet, prioritizing how you disperse cash, and making sure you’ve drawn on your own facilities. So you have the dry powder to make it through this.”

Karabus said having enough liquidity will allow retailers to get through this tough and challenging economic crisis.

“First and foremost, get access to your undrawn facilities as quickly as possible. Immediately initiate very robust 13-week cash flows so that you can forecast what your cash flow is going to be week by week. At the end of the day either the bank is going to put you out of business or your vendors are going to put you out of business when you don’t pay the bills. Because they’re not going to ship to you,” explained Karabus.

“So you want to get access to any undrawn facilities ASAP. Secondly do a very robust 13-week cash flow and update it every week.

“Number three prioritize how you disperse your cash in the most effective way on a daily basis. Get your CFO involved in that process. Not just your accounts payable clerks.”

The other issue in better managing their balance sheets is their inventory, said Karabus.

“The more seasonal your inventory is the more risky it is that if this thing goes on through the spring and well into the summer that you could have a lot of spring goods that are going to be tough to sell at anywhere near full price in the fall – because who is buying sandals in September?” he said.

“The second aspect that goes along with that, the more discretionary your product is. If you’re selling food or household stuff or board games or anything that’s considered to be an essential thing during this time and afterwards, the further you are away from essentials, i.e. the closer you are to discretionary, the more at risk you’re inventory is for markdowns and write-offs So therefore you should ensure you have an expert assess and come up with ideas for how you can best manage your inventory based on your particular circumstances over the next 120, 150 days as we are in the thick of it and afterwards.”

Karabus said the strong retailers leading up to this crisis had good balance sheets. But very few retailers have strong inventory management processes and systems.

“There’s no question this is an area of weakness in many retailers,” he said. “The way that they optimize inventory at a location basis. I think very few retailers do a good job in that area. There’s definitely significant opportunities for improvement.

“And there are not that many retailers that do a great job in those 13-week cash flows. The good retailers have access to liquidity and if you look in the U.S. some retailers like the Gap or Macy’s or Nordstrom, folks like that, on day one of this crisis they drew all the undrawn facility to make sure they had dry powder to get through this. They did it on day one literally.”

Karabus said it’s also extremely important that retailers communicate to vendors, to customers and to staff. Be transparent. Be open. Be honest. Do it regularly and show empathy.

“You want your vendors to see you as somebody who has a long-term view. You want your employees to think that and you want your customers to see that you’ll be there for them often,” he added.

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