The UKs largest travel agency Thomas Cook collapsed early this morning – leaving 600,000 people stranded and resulting in circa 21,000 job losses worldwide. Whilst it’s early days and the main focus today has been on organizing the largest peacetime repatriation since WW2 – early reports have indicated that Thomas Cooks problems center on three areas; financial, social and meteorological.
Looking at these problems – what lessons can be learned for the retail industry, and how important is this due to the large high street presence that Thomas Cook held?
Firstly, financial, Thomas Cook has long struggled not only with weak trading but with a balance sheet overflowing with debt. Back in 2011, the company teetered close to insolvency when the pension deficit took debts to £2 billion – insolvency was only avoided with a £425million fundraise.
Fast forward six years and Thomas Cook is back in the same place. All the rescue money gone and the debt pile is back to £1.6bn. Again it has been hit by poor trading and a series of one-offs, notably weak sterling and a summer heatwave that led to a downturn in demand but it is fundamentally its debt position that has made the business untenable long term.
This is a cautionary warning to all retailers around their debt levels. In the fashion industry, the biggest debts incurred are as a result of under-utilized costly premises and poor stock decisions, too much-unwanted stock languishing in storerooms or being sold heavily discounted and ultimately losing money.
Secondly, social, Thomas Cook has failed to innovate and evolve at the same speed as consumer behaviors have. The brand is clearly trusted and has historical brand value. Founded 178 years ago in Market Harborough (Leicestershire) by businessman Thomas Cook, the fledgling company organized railway outings for members of the local temperance movement before growing to be one of the largest travel agencies in the world operating in 16 countries worldwide. Yet in recent years it simply hasn’t evolved fast enough to fight off competition from online providers and low-cost airlines.
Consumer shopping behaviors are changing across all industries and at a faster rate than ever before, largely thanks to the increased choice and ease of access provided by the advent of the internet. Thomas Cook was undoubtedly a casualty of this as travelers are increasingly putting together their own holidays rather than using a travel agent. This is a similar problem faced by other industries as consumers are no longer loyal to one retailer/provider and are instead ‘shopping around for the best deals’ for example; combining multiple supermarkets for their food shopping – Waitrose for specialist items and Lidl or Aldi for basics.
Thirdly, meteorological, improving weather at home meant more staycations for travelers and signaled a harder sell for Thomas Cook. But weather also has a huge impact on shopping behaviors generally as whilst UK retailers are now filled with their A/W ranges – the unseasonably warm start to September has meant that people really aren’t rushing out to buy cozy winter coats. Lord Wolfson CEO of UK fashion retailer Next highlighted this problem when announcing their half yearly results last week stating; “We believe that the warm start to September has done much more to hinder sales than the political temperature. On a week when it is 24C or 25C you are not going to sell a lot of knitwear.
He went on to prove his point by saying that A/W sales had been stronger in Scotland where the weather had been cooler.
I’m Scottish so I know that the weather can be hard to predict and protect yourself from (Scotland is known to enjoy four seasons in one day) so how can retailers mitigate against the weather. Once again it comes down to stock and stock levels – fast-fashion retailers, for example, benefit from small stock runs and the ability to restock quickly to match demand.
The collapse of Thomas Cook will likely mean another 500 plus empty premises on the UK high street but hopefully lessons can be learned that will save their neighbors and whoever takes up these prime location sites will be able to help reinvigorate the high streets around them.
read more at http://www.forbes.com/retail/ by Cally Russell, Contributor