Business as not usual

In times like these I ask myself: "what would my dad think of this?". As an 8 year old boy, he lived through the Great Depression of 1929. Eleven years later the city where he just had graduated from high school, was being bombed by German planes. He saw it happening from a distance. In 1953, just 8 years after the Netherlands were liberated by the Allies, and a few years after starting a family, the area where he and my mother lived saw massive floodings, killing more than 2,000 people, with mass destruction all over. From the early 60's on prosperity returned slowly. Massive dams and dikes were being built to create safety from surrounding water, a huge undertaking which was called "Delta Works". NATO and EEC (now EU) were to bring peace and trade.

He passed away six years ago, but I am wondering what he would have thought of the present Pandemic. I am sure that his perspective would have been different than mine.

What actually is our perspective and how has it changed? So much has been said and written about Covid-19 and how it will effect retail, economies and people's lives that it's hard to add some new insights. In the past month I've found some.

Forget forecasting. So much for the spreadsheet and roadmap approach. Covid-19 hit us like a bullet. Even in mid February we were still planning business as we've done the past decades. Fully convinced that just like with SARS and MERS this would go away, at least in the Western Hemisphere. The ruling idea was: "Asia will take care of this and wipe it out". Until Italy. We are the generation of managers and leaders pretending that we are capable of forecasting markets and adjusting companies to minor changes in demand or competitors' strategies. With two decimals in most P&L lines we thought we could forecast revenue and EBITDA years ahead. Well that's history now, all projections are now in the bin. Uncertainty is the new normal. It's probably fair to say that the idea of business planning now has new dimensions: versatility, agility and flexibility. We will need these attributes going forward. Forget forecasting and think scenario.

Maslow is back. The debate on which segments and retail categories are going to be impacted is going viral. Everybody has an opinion. I would think this is probably a very simple one. Basic necessities will remain more or less stable. The realm of food(consumption) and shelter (e.g. house related) is good, the base categories in Maslow's Pyramide. Consumer spending on house related merchandise like DIY might be stable or up. The same accounts for electronics, like TV's and laptops. Be aware: a huge part of the present surge will be "forward buying". H2 2020 revenues will be negatively impacted for these segments. All discretionary spending will suffer. There is no need into buying a new iPhone or new sneakers if you already have twenty pairs. Luxury fashion and travel categories will be hit the most. It's not difficult to assess your organisation's position: are you selling "basic necessities" or is it "discretionary spending". The latter will get grilled.

Caption above: “Those are the last Adidas that we bought. For a global group with €3.2bn profits in 2019 to exploit protection clauses for tenants with existential problems is shabby.”

Show some ethics. Governments in EU and elsewhere are spending trillions of Euros and Dollars to help citizens and businesses. I would hope that business leaders receiving funds and subsidies will take a close look in the mirror. Many corporates had huge share buy back schemes running. Others paid out significant dividends to shareholders. Food retail has now double digit growth because out-of-home food consumption is down to zero and consumers are hoarding. But is it fair to pay out bonuses to food retail leaders for revenue growth? Is it fair that governments subsidize companies where directors get bonuses and dividends and at the same time many people will get fired? I don't think so. The financial press will scan and scrutinise what's happening: is it ethics over greed during and post Covid? Before you know it, business reputation is at stake and consumers and politicians will react, like they recently did with Easyjet and Adidas. You are toast.

Cash is the new God. I really hope that all you out there are really keen into cash planning, cash scenarios and working with Net Working Capital calculations. If not: do a crash course. Most (retail) companies I know create a heavy focus now on cash, cash burn and cash runway. They are in survival mode. Capex is on hold, Opex is slashed. Some corporates might divest and sell assets and explore cash injection opportunities with shareholders. All will cut dividend and will use governments funds and schemes, although these will be limited for some months. Businesses might create some headroom temporarily with postponing tax payments and creditors. However intelligent leaders will not just focus on the short term and cash. They might create teams focussing on "life after" and new value propositions post-Covid.

Shit rolls downhill. Covid-19 will slash economies. We're already seeing what's happening in Spain, Italy and France. It's very early to calculate GDP or unemployment for H2 or 2021, but all Western economies will be hit far heavier than back in 2007-2008, during the Financial Crisis. The same counts for the UK and the USA. So businesses will need a complete and thorough re-set: re-think its basics concepts, systems and propositions. I am pretty sure that there is no business leader out there who'll just hope for better times and dream that good old 2019 will return. Hope is not a strategy. The grand old stakeholders perspective is still valid: every stakeholder of the company needs to adjust and support. Focussing on just one or two, let's say the workforce and creditors, won't do. But even this principle cannot disguise the fact that severe and sometimes outrageous measures need to be taken to save the company. Painful as they are, it will be felt down the value chain. Shit rolls downhill.

Positive leadership instead of a funeral undertaker. There will be a lot of pressure on business leaders to steer the organisation away from rocks and cliffs. Probably the most important personality trait now, more than ever before, is to stay positive and show that there is some limited upside out there. Communicate and show compassion. New Zealand Prime Minister Jacinda Ardern's swift reaction to the Christchurch shootings illustrated leadership at best. Employees deserve a leader, not a funeral undertaker. Some companies were slow with digitisation and e-commerce: now could be the time to upstart this again. It's not all barriers and blocks, there are huge opportunities. Never waste a good crisis.

Lesson learnt. Most of our parents lived through crises which were far more severe than Covid-19. They knew things would turn for the better again. Some basic resilience and optimism, mixed with religion and faith, would bring a new perspective. Grand schemes, like the Delta Works and EEC, certainly helped. Moreover, it strengthened belief in the newly elected government leaders and their plans. We will need this. When we've solved Covid-19, there is a bigger crisis looming and you know which one it is.

I am pretty sure my father always knew to be on guard, nothing was for granted. One could never lean backwards and just hope for prosperity. That's my lesson learnt.