Retailers must chart course through troubled waters

Recent headlines highlighted the financial woes of a leading jeweller in Dubai who has fallen on bad times. This underscored one of the important problems that retailers undergo, especially in periods when the markets are weak, which is a lack of liquidity.

We have all been following the severe ups and downs that the gold trade has been undergoing internationally in the last few months, but add to this a general slowdown of retail in the region and you can be sure that there are bound to be some problems.

Cashflow has always been one of the major challenges for retailers. Of course, many who are larger and stronger can easily manage this aspect; however there are others who depend on their monthly collections to meet their obligations.

Through the years, there have been a number of casualties to this affliction in our market. People still remember a large electronics retailer who could not manage his obligations in 1990 when the markets suddenly had to close for five days.

A pile of cheques from creditors reached his bank when the markets reopened, and he just did not have the money to clear them. There was mayhem and which led to a Dh30 million hole which creditors had to deal with.

What was interesting however was how the creditors reacted to the situation. Instead of sitting down with the dealer and trying to work out a recovery plan, it was almost as if the companies (and they were some of the best known names in town) were vying to be the first to put the man behind bars.

In fact, that was exactly what happened.

With this kind of a sword hanging over their heads, it is no surprise that many defaulters take the option of flying out of the country rather than facing the prospect of having to go behind bars forthwith, leaving a whole load of problems for staff and everyone involved.

The news therefore that the Federal National Council has now been sent the draft of the UAE Bankruptcy Law, which includes the decriminalisation of bounced cheques, is really welcome. Once they have debated this, it is hoped the law will be passed, so that people who do get into financial trouble do not think of doing the disappearing act, but rather would be able to work through their situations in a civilised manner as happens in any developed economy.

The recent examples of how a clear and well organised legal structure enabled GM and Ford to work through their financial troubles in 2006 are a case in point, with both companies emerging stronger and more agile.

This would of course put the onus of evaluating and managing risks squarely on the shoulders of banks and other creditors who extend the limits. Today creditors may be taking a more loose approach with the false sense of security that with the first infraction, people can be jailed. But going forward, they will need to manage their businesses with greater professionalism and introduce proper systems — for which the credit rating agency now being mooted will be a great help — to analyse risk and potential.

These are inevitable steps towards a world-class economic system.

In keeping with this whole idea of transparency and proper information, it could also be pointed out that at many levels, the amount of information that is available for decision-making is far from adequate, and most retailers have to find ways and means to create their own information sources, which may or may not be accurate.

For example, simple things like real-time or even monthly information with regard to market indicators such as, number of entries into a shopping mall, the average sale per customer or spend per category of customer — which are normal statistics available in advanced economies — are not available here.

It is not that this information does not exist. In fact, most developers have now incorporated sophisticated measurement systems in their properties, including footfall counters of various types.

They are measuring not just broad numbers, but even detailed information like time spent, average purchases by category, the size of shopping basket, breakdown by nationality, etc. However, they have always kept this information close to their chests, at best giving some broad numbers once a year.

This does not help retailers in day-to-day decision making.

It cannot be stressed enough how important it is for this kind of information to be regularly shared and made more widely available to help retailers make more informed decisions. Not only will it raise the overall quality of retail management, it will help to improve the health of the economy as a whole.

Is anyone listening?

— The writer is a senior executive with a large retail group and the views expressed are his own.