Three retail-based CAs discuss supply shortages over the Christmas break

A little over a decade ago, the retail industry encompassed 300,000 separate businesses and employed some 3.2 million people, representing 8% of all UK jobs. But with the pandemic came an acceleration of changing shopping habits which, on top of the sustained period of financial pressure, meant the challenges facing the high street were too difficult for many to endure. More than 8,700 chain stores duly closed their doors in the first half of 2021 – a net loss of around 5,250 outlets – while one in seven shops across high streets and retail parks are vacant.

For those retail businesses still standing, the battle is far from over. The longer-term impact of the pandemic is now being manifested in supply chain issues and staff shortages, while rising inflation looms for 2022. We catch up with three CAs to ask how their business is adapting, and how they are working to keep shelves stacked and stockings filled this festive season.

High streets are going to have to move towards a more individualistic vision that likely will not have retail as the default focus

James Whitehorn CA
Commercial Director, KFC UK & Ireland

After working in the commercial finance function of Sky Television for three years, James Whitehorn CA moved to KFC in 2015 as Commercial Manager, Strategy, before progressing to Commercial Director in February 2020 – a mere month before the UK’s first Covid-19 lockdown.

“Thinking back on that period now, it’s almost a blur,” says Whitehorn. He utilised his CA skills to move into “crisis management” mode, shouldering “the broader leadership responsibility that finance takes on, whether that’s clear accountancy issues or the strategic leadership element”.

Fortunately, KFC’s business meant “it was able to adopt and adapt to the consumer’s changing habits”, first by reopening as a delivery service only, then drive-thru, then as fully operational restaurants. The strategy helps explain why KFC is today in a relatively healthy position. “Since ‘Freedom Day’ in July, the return to in-store dining and ‘to-go’ customers has increased more quickly than we predicted,” says Whitehorn.

The chicken restaurant’s hugely successful media campaign – which included a tongue-in-cheek censoring of the renowned “finger-lickin’ good” slogan as a nod to Covid hygiene rules – also had “an inordinately positive” impact, says Whitehorn, explaining that KFC’s scores, both in terms of customer numbers and brand perception, are significantly higher than they were pre-pandemic.

But while lockdowns are, hopefully, behind us, Covid’s long-tail impact is still being felt. “Like the rest of the industry, we’re managing through acute supply-chain challenges,” says Whitehorn. He cites a series of factors that has led to certain stock lines being closed or slow to recover from the pandemic – the “pingdemic” has meant fewer packers for distribution; a desperate shortage of HGV drivers is hurting deliveries. “As an adaptive measure we had to take some items off the menu,” he says. “But those have now returned, and we were never close to shutting any restaurants. I feel good about where we are, but it’s a difficult situation.”

Looking ahead, Whitehorn believes the impact of inflation will be “larger and more lasting than we’re led to believe, whether through global or localised challenges with supply chains, and what that means for prices, to energy costs and wage inflation”.

Nonetheless, Whitehorn is optimistic, not just for the future of KFC, but of the high street itself. “I have a firm belief that people do care about their local high street and want to see it thrive,” he says, adding that it’s one reason why KFC’s motto at the moment is to think local. “We have the scale of 1,000 stores,” he says, “but we need to see ourselves as our customers see us – as their local KFC. Every single store is a single store, whether it’s in Dundee or Newquay.”

This more personalised offering should be adopted on a wider scale if the retail industry is to thrive through difficult times. “High streets are going to have to move towards a more individualistic vision that likely will not have retail as the default focus,” he says.

For his own part, Whitehorn is clear-sighted on what he needs to achieve in his role at KFC. “It’s always easier to say no [to a challenge]. Finding ways to say yes is part of what my job is… and long-term superior value creation will result in improved financial performance over time – I’m completely clear on that.”

At Lush, finance works collaboratively with all the different teams and ICAS prepares you well for that

Sarah Bruce CA
Financial Controller, MENA, Lush

When Sarah Bruce CA’s husband found work as a professional golfer in Dubai in 2012, she left her role as Audit Senior at Edinburgh firm Scott-Moncrieff and joined Grant Thornton in the emirate. She moved over to industry, and in August 2018 took the role of Financial Controller at cosmetics company Lush.

Thinking back to the peak of the pandemic in 2020, Bruce explains that, while the lockdown in Dubai was much stricter than in the UK – necessitating a permit to leave the house, for instance – it was, at just four weeks, a great deal shorter. But while the pressure on Lush’s finances was less sustained, the company still had to mitigate for store closures, as well as the reduced footfall post-lockdown, as workers had no government furlough schemes to rely on.

By December 2020, footfall in the region had not only increased but actually far exceeded Lush’s forecasts, which had assumed many expats would be travelling home for the holidays, while travel restrictions would mean fewer visitors entering. “We couldn’t have been more wrong,” she says. “It was busier than ever in the lead-up to Christmas. And then they closed the UK, so everyone who had planned to go home actually stayed.” As a result, stock levels plummeted and “it did take a bit of time” to replenish them. “However, as Lush sells fresh handmade cosmetics, we can react quickly and bring stock in from the UK,” she adds.

“The massive challenge we’re facing now is logistics,” says Bruce, explaining that Lush uses sea freight to bring its cosmetics into Dubai, both for cost and environmental reasons. However, the firm’s eight-week lead time, combined with the intense pressure on shipping at the moment, has meant having to resort to air freight more than once.

“It’s critical for us to ensure that our products land at the right time, and so we’ve also had to air-freight products in preparation for Christmas,” says Bruce. “I did consider that there would be challenges when everything opened back up, so we had forecast at the start of the year as if we were going to bring by air, to ensure that profit levels and cashflow are managed. So far, it’s been okay.”

Bruce feels optimistic about the future of Lush, for this festive period and beyond. “We are expecting it to be busier because we’ve got this increased footfall [Dubai is currently hosting Expo 2020, which lasts until March 2022]… so our thing at the moment is trying to capitalise on that by having the right staff to make sure we can service all the customers.”

As well as doubling its support office team over the past six months, Lush has brought on a whole new property team. “We’ve opened two new stores and we will have another two opening at the start of next year,” she says. “When we closed last year we wouldn’t have thought that would be possible within 12 months.”

One reason for Lush’s strength is its handle on the importance of working collaboratively, and that, says Bruce, is something for which her CA qualification has equipped her well. “Being in finance doesn’t mean you sit at your desk punching numbers all day,” she says.

“At Lush, finance works collaboratively with all the different teams and ICAS prepares you well for that. If you work through all the different elements, you can definitely put everything into practice.”

CAs truly understand how the business works and how one decision on one side of the business may affect business elsewhere

Himesh Patel CA
Head of Finance, Global FP&A for Channels, Tesco

After completing his ICAS qualification in 2001, Himesh Patel knew he didn’t want a long-term career in audit, but rather in a FTSE 100 company, preferably one outside of London, that had an international arm to allow him to travel the world with work. Tesco ticked all the boxes, and so after joining as a Senior Consolidation Accountant in 2006, he has since worked in a variety of roles, most recently becoming Head of Finance for Global FP&A for Channels.

When the first lockdown hit in 2020, one of the key decisions he was tasked with was how to manage staffing requirements to mitigate the impact of the significant number of colleagues who had to isolate while also managing increase sales. “A global pandemic happens once every 100 years and we weren’t sure exactly what would happen,” he says. “Looking back, it’s something I’m super proud of in terms of myself and the broader ‘natural work team’, as what we delivered meant we were able to keep Britain fed.”

Fundamental to this success was Patel’s ability to look at the broader picture. “That’s the benefit of an ICAS qualification,” he says. “We do truly understand how the business works and how one decision on one side of the business may affect business elsewhere, and to have consideration for that.”

While December 2020 involved much strategising around the unknown (eg “Do smaller gatherings mean people will want smaller turkeys?”), Patel is “very, very positive” about 2021, despite the challenges around HGV drivers and labour shortages. “Months of planning in the background means we have a world-class supply chain,” says Patel. “We’ve known about [these issues] for a while and we’ve been working with all of our supply partners to try to make everything as simple as possible to ensure that we can give our customers a great Christmas, whether that’s simplifying our supply chain or our product range so that our suppliers aren’t trying to link too many different variants of different products.”

That’s not to say the issues facing the retail industry have – or will – be simple to overcome. “The HGV driver issue is something that can’t be fixed overnight,” says Patel. “We’re trying to get more drivers to come through and do their HGV test and then become qualified HGV drivers so they can work in that area.”

The future for Tesco however, still looks bright due to its ability to adapt to changing customer needs, which in the upcoming months means collaborating with new third parties such as Yo! Sushi and Decathlon, as well as creating a service through which customers can buy a product online and collect in less than an hour. “We’re fortunate in that we’re a broad-based retailer,” says Patel. “We will go where a customer goes. However they want to shop, Tesco is available for them.”

ICAS explores the benefit-in-kind implications of HGV drivers working on temporary visas.