Rightsizing is painful but right

  02 August 2020

Last week was a painful one for automotive retail. Pendragon cut 1800 jobs and committed to closing 15 sites, which actually ‘only’ accounted for 400 of the job losses – hard for those involved, but that there are another 1400 jobs going elsewhere shows the scale of the restructure.

Inchcape, after announcing a £188m H1 pre-tax loss, announced a planned reduction of its global workforce. And this comes after Lookers cut 1500 jobs and Jardine cut 500. More, many fear, are to come.

Covid-19 has been an accelerator. Pendragon was reportedly already working on a strategic overhaul, which presumably has been fast-tracked because of the crisis: we’re to hear more about this during August (although the company currently at least says there are no more job losses in store when it is announced).

Painful as it is, these are moves automotive retail has to make. Businesses need to right-size, to reflect modern automotive retail. The manual processes that have dominated up to now simply aren’t as essential as they once were. Customers do more online. Visit retailers less. You potentially already spend more time emailing and texting a potential buyer than you do actually seeing them face-to-face.

Retailers know all this. What Covid-19 has done is turn something that was on the horizon into an issue that has to be dealt with immediately – right away – as the future of the business is at stake.

When we get back to normal times, those retailers who have right-sized in the right way should enjoy the benefits. Digitisation is inherently more efficient. If revenues remain as they are – and there’s no reason why they shouldn’t return to normal levels – the potential to lift the industry from a typical 2% profit margin up to those enjoyed by retailers in other industries (surely 5% is within reach?) should be a target.

Some retailers have been criticised in the past for being slow to digitise. Covid-19 means there’s no longer any excuse. The pain we’re seeing at the moment is regrettable for all concerned, but hopefully the outcome will be leaner, more efficient, more modern businesses ready to thrive in the future. The coronavirus crisis is severe, but could just be the tipping point to future prosperity.

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