Forecasting Troubles In The Retail Industry
January 26, 2015
For the past week or so Wet Seal, a young women’s clothing store, has been getting a lot of buzz in the media, and no it’s not the good kind of buzz. Wet Seal is closing a number of stores, laying off thousands of employees without notice causing a huge PR debacle, and is heading towards bankruptcy. This is really no shock to those that have been studying their financial situation. Throughout the past few years, Wet Seal has faced some serious challenges with the buyer behavior of their demographic changing, as well as some stiff competition from retailers such as Forever 21, H&M, and online boutiques, but what else went wrong?
In order to truly dissect what went wrong, we need to backup and gather all the facts. According to Bloomberg, the company has lost more $150 million over the past few years and is expected to lose another $88 million this fiscal year. However, amidst all this financial trouble they decided to give their CFO a 27% salary raise, which is a completely different conversation.
A similar company challenge is also unfolding in the United Kingdom. Tesco, a leading supermarket headquartered in the UK with locations worldwide, is in the middle of a huge accounting scandal, resulting in the refusal to open new stores and the closure of operating stores. One difference between Tesco and Wet Seal is that in the case of Tesco, several of their executives were fired when the scandal broke resulting in no raises or bonuses.
Both situations could have been avoided. Both go back to one key mishap: proper forecasting. Tesco’s alleged accounting malpractices led to a $425+ million overstate of the company’s first half forecasting profit. In Wet Seal’s case, while a number of things could be a direct result of Wet Seal’s financial troubles (nothing was specifically stated), failure to properly forecast is probably one main contributor, especially because it seems like they failed to understand and monitor Market trends, in turn overstating profitability goals.
Proper Planning & Forecasting Is the Answer
These two cases are perfect examples of why having the right processes, people, and tools is the secret sauce to success. Proper planning and forecasting could have prevented both of these financial disasters through scenario modeling. Wet Seal and Tesco could have gotten down into the nitty-gritty details and analyze all types of situations, if they had the right software in place and been able to do it proactively allowing time to redirect their business before catastrophe. Now, both companies are in reactive mode, seeing what they can do to save the company, instead of being proactive and preparing for what 2015 has to bring.
There are many technologies available to automate these processes but if you do not have the correct people & process in place you can still fail.
Per Aberdeen Research the top 1% of companies that are achieving best in class Sales Performance Management (SPM) have enabled a technology solution for optimizing revenue and incentives and are at the upper end of their SPM maturity. What is your SPM maturity for your organization? Do you know where your leakage points are before it’s too late?
As a trusted leader, global advisor in performance management solutions, OpenSymmetry has the proven track record to help your organization accelerate business performance from Strategy to Success. With our help, we can identify quickly your organizations SPM maturity level and give you a road map to future success with a hands on approach. Schedule a Meeting with one of our experts today to learn how OpenSymmetry can rapidly enable you properly plan, forecast, and budget financials to align to your sales and people performance so you are able to stay ahead of the curve. Or learn what technology might be the best fit for your organization.
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