How retailers can make the best of a slowdown

I have made some minor editing on this very pertinent piece that originated from the renowned consulting firm, McKinsey & Co:

The downturn dynamics are coming into play in one way or another in Malaysia. This is typified by declining sales followed by a sluggish recovery period.

This means retailers should move quickly to minimize performance deterioration. The challenge, of course, is that retailers have a large number of options to sort through, ranging from cutting costs by shutting stores or restructuring support functions, to increasing revenue by refreshing stores or overhauling promotions. Many make the mistake of focusing on what is easy or known to them and fail to tackle more challenging goals that might improve their competitive positioning during the inevitable upturn.

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Some basic rules of thumb are invaluable for helping retailers rapidly sort through their options and set priorities for action. In particular, determining whether to take an offensive or defensive approach. Combining a tough self-assessment with a hard-nosed scan of the environment can help retailers decide on the relative importance of reducing costs, increasing investments, creating financial flexibility and seeking near-term revenue growth.

Retailers should start by taking a rigorous look at the health of their balance sheets, management teams and overall operating performance. Companies with reasonable cash reserves and ready access to credit lines, for instance, have options--such as investing in stores, people or acquisitions--that weaker competitors simply lack.

At the same time, retailers need to be realistic about the potential of their businesses. Do they operate store formats or play in a sub-sector with strong growth prospects? To what extent is the market already saturated, and where does the retailer stand versus competitors? Recent growth rates, market penetration figures, and a serious review of the strengths and weaknesses of competitors are all important factors to consider.