Wrong-sized Retailer Topshop Put Right
Failed retailer Topshop was recently thrown a lifeline when administrators stepped in, closing all but four of its nine stores in Australia to stem the flow of losses from the underperforming outlets. Myer also closed all 17 of its concessions for the brand. (Concessions are mini-stores that sub-lease space in major department stores.)
And while administrators Ferrier Hodgson boasted a successful restructure following a rightsizing of the business, with more than 500 jobs lost and countless others affected, how could this possibly be deemed a success?
Rightsized out of a crisis
Rightsizing is the process of evaluating a business through its various business units to determine which are making money, and which aren't. Those parts of the business not making a profit or found to be draining the business are often closed or removed to restore an optimal operating structure.
In the case of Topshop, the business units were made up of each individual store, each concession and the total overhead cost of head office. And based on whats now left, it would appear only four Topshop stores made a profit, and the head office requirement to service these stores was sufficiently small to produce a reasonable return (to attract a potential buyer).
Are you rightsized?
Understanding business unit profitability is critical to knowing what your right size is, ie. the size that makes a profit that satisfies the needs of investors. To know if you are operating at the right size, you need to consider these questions:
- What are my business units?
- What is the profit of each business unit?
- How much profit do I need to make overall?
- What strategies can I do to increase profit in that business unit?
- Does keeping a business unit as a loss leader make sense for me?
- Am I growing too fast?
- Is my overhead too big?
If you're not sure of the answer to these questions, consider asking one of our expert CFOs. We guarantee your 3 questions will be answered by a CFO with real-world experience leading businesses.