What is restructuring: case study Leonardo

On a footwear retail market that recorded a 30% decline in sales in 2008, companies sought to improve both profitability by cost-cutting measures and efficiency of the business.
Romania’s largest shoe retailer, Leonardo had to face a restructuring that could keep it afloat for a short term and that could improve its cash flow to repay debts.

Ensight Management Consulting was appointed to spearhead the shoe retailer’s restructuring efforts. After three months of running the project, the client has reached all its objectives and can run the restructuring process on solid ground, according to Ensight report.

The Ensight analysis reveals that Leonardo had been running an aggressive expansion policy over the recent years. For store supply, the company has increased its shoes inventory, which led to a heavy debt burden to providers. Given the lack of sales and the growing inability to attract additional funding, the debt became difficult to be repaid.

Under these circumstances, the retailer has called for assistance to management advisors in an effort to reduce spending and improve efficiency of the business. The main objectives devised by Ensight together with Leonardo included a short-term survival of the company and cash improvement to repay urgent debts.

Ensight advisors adopted a three-tier approach to manage the troubled situation of Leonardo: to unlock the full potential of stockpiling commodity, debt deferral to minimize the impact and to cut the non-core expenses.

In order to put the project in place, nearly 30 unprofitable stores were closed which involved the layoff of 600 employees. Aggressive promotions have contributed to the sharp footwear market contraction and have met consumer demand for low-price products. By keeping a high sales volume, the rotation of the old stocks increased, with reduced short-term margin, but with medium-term growth potential for the new-season items.

Even if the structural reorganization of sales network has led to an increase in one-time charges, the company will show notable reduction in staff-related costs and rent compared to 2008.

On the other hand, the company has managed to streamline its acquisition policy (lower volume, fewer items, collections revised and focused on key suppliers) and to tailor it to the market’s current needs. Line managers have been integrated in a new management team centered on intensive and constant teamwork.

Furthermore, in order to minimize the risk of possible halt in operations caused by a strategy focused solely on cost cutting, in the first half, the company has devised the organization process and elements to reduce transport and storage-related costs.

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