Retail Doomsday: How Businesses Are Adapting (or Dying) in a Changing Economy
As retail giants Amazon and Walmart duke it out for America’s top retail spot in an increasingly digital economy, the news is littered with companies that haven’t made the cut and have been forced to close. Let’s take a look at a few of these now-derelict companies and break down why they failed.
By all accounts, Amazon is today’s King of Ecommerce, boasting 43 percent of all U.S. online retail sales last year. Thus far, the only corporation with the resources to pose a serious threat to them is Walmart, the largest overall retailer in the world. Employing a new acquisition-based strategy to revitalize their traditional brick-and-mortar retail plan, it appears they’ll have a fighting chance against their arch-rival. Other companies, however, have not been quite so resourceful.
The ground is littered with the smoldering corpses of once-proud retailers that have been crippled by the changing economy and have starved in the face of new consumer spending habits. Stores are rapidly filing for bankruptcy and no chain — no matter how large or iconic — is immune.
The companies listed in this article have all filed for Chapter 11 Bankruptcy, meaning that they are unable to service their debt or pay their creditors. Essentially, the company retains control of its assets but is declared a “debtor in possession,” and is protected from litigation for a short time. This gives businesses a chance to restructure and reestablish themselves, all under supervision of the court. So while it’s not the guaranteed end for these companies, it’s a last chance. If they don’t find a way to find their relevance in the 21st century, time is against them.
The factors that play into these closures are many, but one theme that seems to be present in almost all cases is the rise of ecommerce. Adaptation has become mandatory for older businesses to stay afloat, and those that can’t find a way to stay relevant are being quickly tossed by the wayside.
Let’s look at some of the businesses that won’t be joining us in 2018, and break down the reasons they didn’t make the cut.
As the New York Times so aptly put it, “The story of RadioShack begins with failure.” I’ll add to that by saying it ends with failure as well. According to the Times, RadioShack was founded in the 1920s as — one can imagine — a radio supply store. Eventually they made a name for themselves as a store where you could find any electronic gadget you may need, appealing extensively to hobbyists.
The store’s rocky history was marked by a brief boom in the ‘70s when they sold CB radios with resounding success. Unfortunately, they somehow managed to miss out on the computer boom of the ‘80s, outdone by the likes of IBM and Dell. This repeated itself numerous times, as no matter how many times they tried to specialize and redefine themselves, they always remained just a shop for hobbyists looking for interesting electronics.
RadioShack formally declared bankruptcy in March of this year, but incidentally, this isn’t their first run-in with financial doom. They actually went bankrupt for the first time in 2015, selling off nearly half of its stores and allowing wireless company Sprint to set up shop within them. The hope was that the union would boost sales for both companies, but it quickly ended in disaster.
RadioShack has again declared bankruptcy, and its creditors are even suing Sprint, alleging that they used information from the RadioShack merger to open competing stores in RadioShack’s most lucrative locations, further damning the already-embattled company. They survived for two years, and then their parent company, General Wireless went bankrupt in 2017. Even with the bad luck and the missed opportunities, the real nail in the coffin for RadioShack was the same antagonist which ails most older retail chains: internet retailing.
Online shopping has also damaged the one thing that kept RadioShack afloat through all previous struggles: its reputation as a tech hobbyist’s friend. It’s easier than ever now to find obscure technology and it’s much easier than hunting around a store. Clothing stores have the advantage that consumers will always prefer to try on clothes in person, lending longevity to physical locations. Technology, however, lacks this.
Whether I order my gear online or find it in the store, I can be pretty sure that the item I’m getting is going to be the same regardless of origin. With no advantage in variety and no increase in quality to be had by purchasing items in person, RadioShack has finally met its end.
Shopping Malls and Outlet Stores
If you’ve ever been mall shopping, odds are you’re familiar with Payless Shoes. It’s been a mall staple for decades with over 5,000 stores. Dark times are looming for the large shoe retailer, however, as this company may soon go the way of the dodo bird. Upon filing for Chapter 11 Bankruptcy, Payless immediately closed down 400 stores, with around 400 more on the horizon.
Payless is only one of many similar businesses to declare bankruptcy this year, all sharing one common trait: they’re mall apparel stores. You might be familiar with the likes of Wet Seal and Rue21, both of which have filed for Chapter 11. These teen-targeted apparel stores seem to be in the most danger, as the casualty list keeps growing.
These closures are symptomatic of a larger problem: the death of the shopping mall. As it becomes easier for us to find anything we need from the comfort of our own homes, there’s no need for a one stop shop like a mall. Their allure was their efficiency, and the Internet is just better at doing the job.
As these stores drop like flies, they’ll have to use the time they buy declaring bankruptcy to reinvent themselves in a way that appeals to a new generation of consumers weaned on a new, digital marketplace. It’s clear that they’ll need to bolster their online presence and shift their focus where the money is. By closing many of their physical stores, they’ll reduce their costs and have a chance at rebounding under new models and, in many cases, ownership.
Department Stores: The American Mainstays
Of course, bankruptcy isn’t the only sign of the end times. Lots of large stores are closing many stores this year, able to remain running mostly due to their large size and past success. Sears is closing a total of 307 stores this year, bringing their total down to almost half the stores they had open five years ago.
Department store chain J.C. Penney is shutting down 138 stores this year, and Macy’s will be closing 68. While obviously it’s not the goal for these businesses to close locations, the fact that they’re not bankrupt means that they have time and resources to adapt.
This need to stop the financial bleeding is best summed up by J.C. Penney’s CEO Marvin Ellison: “We believe closing stores will allow us to adjust our business to effectively compete against the growing threat of online retailers.” It couldn’t be more straightforward, and it’s clear no business is too large to feel the effects of the changes that are occurring in our economy.
However, unlike the aforementioned malls and their outlet stores, large retailers like Sears have the ability to restructure themselves and come up with a new business model that reflects the environment they now operate in, buying time against an inevitable bankruptcy — that is, if they fail to adapt properly. It’s an advantage but only if the time is used wisely. If they can’t find a way to refresh themselves and stay relevant, they’ll be left behind as well.
Suffice it to say, it’s crunch time in the retail business. No matter who you are, it’s now or never to evaluate where your business stands in the new online economy. It’s no longer possible to rely on past successes, which, if allowed to foster complacency, can only delay inevitable doom. That doom is far from guaranteed if a business can overcome the increasingly rapid changes we’re seeing brought about by ecommerce. Now is the time for business owners and entrepreneurs to embody the spirit of innovation that has been the hallmark of successful commerce for time immemorial.
Those with the ability to recognize where the market is headed and act on that are the ones that will define the future of our economy, whether it’s a startup tech business or an iconic retailer that’s been around for over a hundred years. If you’re a business owner yourself, learn from the lessons of those who’ve fallen and those who now thrive in this volatile atmosphere. It can be a new beginning, or simply the end.