RS&F: A Case Study of a Growing Company....
RS&F was engaged by a local retail chain of women's clothing stores. Previously, this client was being represented by a national firm that was not providing them personalized attention and timely information. When this retailer became a client with RS&F, it had eight stores and planned to expand to 20 locations.
When this client started working with RS&F, the retail industry weathering a global downturn and this company encountered challenges due to their rapid expansion of retail locations. Their issues included:
- Insufficient financing to fund their growth plan.
- Not enough cash flow to support the company's infrastructure.
- A troubled banking relationship.
Recognizing that the retailer had the potential for much greater asset value, RS&F's advisors worked with this company to develop and implement a strategic business plan.
Following RS&F's review of our client's business operations, we concluded that the company's significant financial losses were the result of underlying inefficiencies and not a fundamental problem with the business model. We understood that the client needed to redirect the allocation of their capital and improve their purchasing function. RS&F devised an approach to benchmark key performance indicators and evaluate each store's performance. Rather than measuring the company in the aggregate, we insisted that the client analyze the business on a per store basis.
The stores were grouped into three performance categories - "A", "B", and "C." The "A" and "B" stores each accounted for 30% of the company's revenue while the "C" stores accounted for 40% of revenue. The noted designations were based on each store's contribution margin, which represented the store's ability to contribute to the coverage of administrative expenses and infrastructure of the entire company. Several "C" stores had a negative contribution margin, which meant that they could not even cover their own internal store costs in addition to not contributing to corporate overhead. RS&F recommended that the retailer close their "C" stores.
RS&F's next major recommendation was to build the company's cash flow and reserves. With our assistance, the client was able to secure a new banking relationship. Once the retailer was financially stable and had a positive platform from which to grow, RS&F developed a plan for the retailer to expand in a controlled and measured manner.
Many years after this client began investing in RS&F's consulting and accounting services, this retailer was positioned for an initial public offering of stock. By that time, our client had over 100 retail locations across the United States as well as a very loyal customer base. Rather than going public, our client decided to sell itself to a national retailer in what amounted to a terrific creation of value for our client.