Why suppliers will continue to do business with companies in receivership

My blog last week on Jan Cameron and Retail Adventures drew a lot of highly-charged feedback, not surprisingly from suppliers unhappy with money they had lost or had at risk when the retailer was put into administration.

My closing line in the blog was: “It’s important that she or somebody tries (to turn this business around). Retail Adventures is a large business, providing jobs to many employees in some of Australia’s highest unemployment suburbs. I wish Jan, her employees, suppliers and the receivers good fortune”.

I said the same thing to Cara Waters at SmartCompany during an interview later that week, following the Retail Adventures creditors’ meetings in Brisbane, Sydney and Melbourne on Wednesday.

Last Wednesday I attended a monthly breakfast with 20 suppliers to retailers and manufacturers. A good cross-section of business attends these meetings, from one-man operations to Australian brands that produce and sell in Australia and overseas, as well as companies that sell on behalf of international brands.

We spend two hours each month discussing the shape of Australian retail. At last week’s breakfast were some suppliers who were going to the Deloitte creditors’ meeting for Retail Adventures later that day. These suppliers had already been in discussions with other supplier creditors, and interestingly, based on a straw poll prior to the creditors’ meeting and without having any detailed idea of what may happen at that meeting, about 50% of the suppliers that had previously supplied Retail Adventures said they would be supplying again. At the time of writing, I do not know the outcome of the creditors’ meeting.

Why, having lost money when Retail Adventures first went into receivership three years ago, and then again in 2012, were suppliers willing to trade again with that business, albeit under a different name? Well, the answer from the suppliers I spoke to was pretty simple: “I have thousands of dollars of stock that needs to be sold through a discount store retail environment sitting in my warehouse; the only place that it will be sold is via a discount retailer, and Crazy Clark’s and Sam’s Warehouse are a big part of the discount store foot print”.

I ran my first distribution company at the age of 25, and remember being told: “Get the sales team to sell this stock into stores. Shoppers may buy it from a store; they can’t buy it from our warehouse”.

If this sounds a little far-fetched, one discount shopper’s comment on the SmartCompany site last week was, “I love the Crazy Clark’s store where I live. I hope it isn’t one of the stores they want to close”. That Crazy Clark’s shopper is the supplier’s consumer. And the number of shopfronts suppliers have to sell through in Australia, Europe and the US is shrinking. Fast.

How fast? Well, if you’re a supplier and your most loyal consumers live in Tasmania, where your products were sold via Chickenfeed stores, it’s unlikely you will be able to sell to those consumers anymore. These stores will most likely close soon, as no buyer – not even Jan Cameron – wants them. That’s around 25 shopfronts gone, and around 120 full and part-time jobs. If you search the SmartCompany site with the word “receiver” or “administrator” the number of mainstream retailers that have been put into administration in the past two years is eye opening.

Here’s the key thing that faces all Australian product suppliers: if Australia follows the US and European trend projections, internet shopping locally will grow to approximately 10% of overall retail sales. In my opinion, this will slow store expansion by the major retailers and lead to ongoing store closures due to falling profitability, resulting in around 2,000 to 4,000 fewer shop fronts, of all types, in Australia by 2015. I have no statistical basis for this number, just the extrapolation of what we have seen in the US, where 4,500 stores are predicted to close in 2012, even with rising dollar sales.

What does that mean for Australian suppliers to retailers? Well, overall retail sales aren’t falling. They’ve stabilised and are showing slight growth. But there are fewer stores, and more pure internet players, so suppliers need to be doing business with as many of them as possible. If you are a supplier, your business development team, which may be you alone, needs to be meeting with new, traditional and online retailers.

As CROSSMARK CEO, Kevin Moore looks at the world of retailing from grocery to pharmacy, bottle shops to car dealers, corner store to department stores. In this insightful blog, Kevin covers retail news, ideas, companies and emerging opportunities in Australia and across the world. His international career in sales and marketing has seen him responsible for businesses in over 40 countries, which has earned him grey hair and a wealth of expertise in international retailers and brands.

CROSSMARK Asia Pacific is Australasia’s largest provider of retail marketing services, consulting to and servicing some of Australasia’s biggest retailers and manufacturers.