Picking the Bad'un

I AM INDEBTED to one of Graydon’s clients who has pointed out something to me he had gleaned from a Graydon credit report.

The report was on a particular home furniture retailer whose profit margin was considerably lower than other companies in the same sector over the financial years of 2007, 2008 and 2009. Judging that in this current economic climate, any high street furniture retailer wanting to shift product would have to get involved in promotion led sales, he anticipated that this one would not be able to afford to offer generous discounts to reticent punters and would therefore struggle to compete.

Sure enough, the company concerned has just called in the administrator.

The British Retail Consortium and KPMG have just revealed that UK retail sales values declined year on year by 1.9% in March, the biggest decline seen since 2005. The high street’s ongoing woes have been well documented in recent times, with some commentators pinning their hopes for the sector on a buoyant Easter and a feel good factor surrounding the upcoming Royal Wedding.

In all this gloom, however, we must all remember that even in a recession, only a small minority of businesses actually go to the wall. The management task, if you supply goods to the retail sector, is to be able to spot the bad’un.

Comparing a company’s financials with those of its peers is certainly one way of helping the process along in order to avoid nasty bad debts.