By Walter Freitas
Today I read in Valor Econômico that J.C. Penney, a traditional American retail company, is expected to file for bankruptcy in the US. This reminded me of September 2008, when it was announced that the investment bank Lehman Brothers filed for bankruptcy in the US.
What I mean is that this pandemic, which has impacted all countries in this first half of the year, is already a historic event, much like the US real estate market crisis was.
In Brazil, with over 5,000 deaths to date and 50,000 confirmed cases, COVID-19 has caused a surprising impact on all of our routines.
Companies, in general, revised, reduced, or shut down their operations, leading to a collapse in our business environment, which had been showing signs of improvement. According to a March 2020 BBC News article, the number of unemployed individuals is expected to reach around 20 million over the course of this year.
Understanding this challenging scenario we are facing, Level Group conducted a survey to analyze how its clients' suppliers were coping with this hostile environment. 3,500 supplier companies were consulted—over 70% of them micro and small enterprises—which revealed, among various insights:
Five Relevant Insights
- The biggest challenges faced are:
- Reduction in contractual revenues with an impact greater than 10%
- Delayed receivables impacting cash flow by up to 10%
- Extraordinary investments driven by increased Information Security requirements due to the greater use of digital channels and tools
- Most companies are reviewing operational and strategic processes for immediate cost reduction and optimization.
- Government relief plans for companies (payroll credit lines, FGTS installment deferrals, among other concessions) are being utilized by more than 30% of respondents.
- Monitoring of strategic suppliers regarding COVID-19 impacts is now conducted on a weekly basis.
- More than 60% of surveyed companies reported implementing remote work with performance management driven by key indicators.
These responses can help us direct efforts toward which areas and frequency we should evaluate our suppliers, aiming to understand how they are coping with this crisis, the impacts sustained, and potential issues that contracting companies must monitor to prevent disruptions to their business.
Considering that most surveyed companies are small businesses and their clients are larger corporations, the latter can develop initiatives aimed at maintaining a minimum capital structure for their partners' operations. This will help mitigate risks arising from the need for drastic headcount reductions or the revision of the technical specifications of their products or services.
To support the market and minimize risks related to the current situation, Level Group has added a complementary service to its portfolio featuring supplier monitoring for strategic partners through weekly management reports focused on key suppliers. Through these initiatives, we aim to help companies currently hiring or contracting to focus on the short term, while actively working to build a path toward a broader horizon.
We are committed to the principles of Fair Trade.
