Painful recovery

Visiting Berlin this week on the day that the giant Arcandor group filed for bankruptcy was a sharp reminder that this recession still has some way to go before it is played out. This is despite the fact that over the last few weeks, commentators have been latching onto any positive indicators that have been published or continuing strength in stock markets around the world.

The fact is though that these are financial indicators that are showing movement from a very low base. For businesses, the effects of the crisis in the banking system are cleary still being felt and will continue to. Arcandor’s bankruptcy has been described as Germany’s “Woolworths moment” similar to what the UK retail sector experienced at the end of last year when the long established retailer disappeared. Unlike Woolworths, there is strong likelihood that it will be broken up and survive under new owners. However, the shock to the system, let alone the 42,000-plus employees, their families and then the extended network of suppliers is immeasurable.

How this or any other business in Germany or any country around the world should respond is clearly crucial. Talking to retail experts in Germany, it seems that there is an increasing focus on the customer, but more than that, it is existing customers. At a time when everyone is seeking to cut marketing budgets but still deliver better response rates, there is a realisation that your existing customers need to be looked after because they cost less than winning new customers and deliver more.

There is also the realisation that this can only be delivered by having ever improving standards of customer service delivery and that, in turn, is only delivered by great leadership throughout the business - from departmental head level right up to the very top.

Reading Australian retail consultant, Peter James’ Red Communication newsletter report on the World Retail Congress, he makes a similar point. Customers are definitely changing he argues but that is not the issue. It is that customers are bored and the solution can only come from retailers putting back inspiration into their offers and their stores.

Again, that can only come from leadership providing the direction, but Peter goes further, saying that what retailing really needs is less business school management and more retail merchants at the helm. Some certainly might conclude that this was Arcandor’s problem in its latter years - long after Karstadt lost the culture imbued by its entrepreneurial founder.

So, will the winners emerging from this painful recession be the merchant princes or the business school managers? I think I’m with Peter in backing the merchant princes.

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