Source: The Retail Doctor Blog
What are the signs of a dying retail business?
Through a special arrangement, presented here for discussion is a summary of a current article from the Retail Doctor’s blog.
Why is it employees often see the warning signs of a dying store before owners and managers? Because they see things through the lens of a customer and their own paychecks.
Here are six warning signs I’ve seen in businesses of all sizes:
- Reliance on discounts. Constantly teaching your shoppers to only buy when things are marked down ruins margins and morale
- KPIs falling. The most important metric everyone still looks at from smaller to larger stores is simply, did you sell more this year than last? Your average number of items sold per customer should also rise; it is the one metric your employees can most impact. A struggling economy may require a reassessment, but core KPIs should be improving.
- High employee turnover. Your number of W-2’s you sent last year shouldn’t be a huge increase from the prior year. When a job is seen as repetitive, stressful and/or not rewarding, good employees look elsewhere.
- Customers aren’t viewed as important. A struggling business looks at shoppers as a distraction from their tasks or their conversations. I kid you not, I had a buddy of mine go into a hardware store last week in his wheelchair, approach the counter, and ask for help. The guy simply replied, “I’m on break,” and walked away. The odd thing is, another employee had helped him so much the previous day that he went out of his way to return. Never again.
- Undercutting employees. I used to work with a coffee chain and we had spent months developing our version of Pumpkin Spice for the fall. Over the weekend, prior to giving the order for the products, the owner capriciously said he didn’t like the taste and demanded a change. Within 24 hours a new sample arrived that he liked but no one else did. The launch failed spectacularly and left the new products team demoralized.
- High costs to acquire new customers. Brick and mortar retailers often run sales and promotions to get shoppers to come in the door, but unless your average ticket can support it, you often are chasing your tail.
Discussion Questions
DISCUSSION QUESTIONS: What would land on your list of telltale signs that a retail business is failing? Would you add any to those mentioned in the article?
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BrainTrust
"Making the same mistakes over and over is a recipe for retail sclerosis."
Cathy Hotka
Principal, Cathy Hotka & Associates
"I’d like to add another item to the list as well – dirty stores and messy product set-up."
Paula Rosenblum
Co-founder, RSR Research
"A common theme is a lack of focus on what consumers actually want."
All these symptoms point to the same root cause – disconnected leadership at the top!
Adding to the great list above would be the deterioration of stores. Are there lights out in the window? The carpet or floor trashed? Scuffs and gashes at the corners of the cash-wrap? The clock is ticking.
Indicative signs are: declining traffic without a corresponding increase in basket size, inability to meet the debt service, need for special sales in order to boost foot traffic, and declining chatter on social media.
Although it’s very qualitative, I also think the energy level in stores is a key sign of success or failure. Failing stores feel very low energy, staff are not engaged and many simple tasks are simply not attended to. It’s almost like everyone, from management down, has given up. Of course, this creates a very vicious circle which perpetuates further decline as customers defect elsewhere.
Totally agree with you Neil – Energy in stores from the employees should (in most cases) transfer to the customer. A disconnected employee won’t create a welcoming environment, and sales drop as a result.
I think the energy of a store is such an important concept Neil. Just the act of unlocking the door and saying or thinking “I hate the holidays’ puts an entire pall on the crew and the very store.
Can I add another to Bob’s great list? Unwillingness to change. Making the same mistakes over and over is a recipe for retail sclerosis.
AMEN. I actually saw this at a retailer I was working with. They were actually doing financially well and stopped innovating and reassessing experiences, and quickly became part of the pack, and have since begun to more heavily run promotions.
I agree with all the points of the article but the one missing is: focus. When company leaders no longer concentrate on the store level, that’s when things begin to change. Today too many leaders are more interested in focusing on the latest technology that will save them money, their bonuses, and their next job when their current one ends. Moreover, there is too much concentration on “me” and what’s in it for me. This type of leadership is the death of any business. The point made: “Customers are not viewed as important” is SO on target because that’s the one point that will negatively impact all the other aspects shared in the article. However, when management is more interested in protecting bonuses while at the same time reducing staff, not making needed store improvements not keeping up with the best merchandise and listening to customer demands, the party is over. Why is it today that so many executives who leave a failed company get rehired to do it again and again? That’s a question I would love someone to answer.
This is indeed an exhaustive list by Bob Phibbs. (And he has the experience and insight to be extremely credible!)
The one thing I always put on my list of telltale signs is “relevance.” Consumers have changed and competition has become more fierce and varied, yet too often retailers have simply not evolved. I’m amazed at the number of tired retailers (I refer to them as “establishment retailers”) who seem to have their heads stuck in the sand on a desert that is no longer visited by shoppers. Look around, adapt, and return to relevance!!
Great point Dave and thanks. They’ve become warehouses and if shoppers want to shop in a warehouse, they probably aren’t in a department store or boutique – be relevant to them!
I’d like to add another item to the list as well – dirty stores and messy product set-up.
This is important because retailers tell us in our surveys that “if only they had the money, they’d make their stores cleaner.” As a consumer, a dirty store tells me “these guys are short on cash and cutting corners.” So whether it’s actually true or just perceptually true, this spells doom for a retailer.
So, keep your stores (and bathrooms!) clean, well-stocked with product neatly arrayed, and customers will be attracted.
Agreed, Paula. Stores that look like they are “not out for business” rather than “out of business” will not survive.
Totally agree. Seems to be the simplest thing to control (the restroom being clean).
Amen. The amount of dust (on surfaces and products) in one of the Macy’s stores close to me is astonishing! It says a lot about the business and its standards, or lack thereof!
That quote stood out to me from your report Paula and in fact I used it in a recent post. As if having $ = desire to provide a clean store. If you have time to lean, you have time to clean isn’t just for restaurants.
I always look at the outside of the store or mall: the parking lot, sidewalks, shrubs, etc. When they are poorly maintained and/or trashed, it’s a sign the business doesn’t care. Unfortunately these days, even thriving businesses like Publix and Costco often do a poor job of outside maintenance, so it may not be the sign that it once was.
This is a great list of warning signs, however, if you dive deeper into the KPIs, e.g., transactions per month, average transaction size and other inventory management metrics by product category, you will see that these very basic measures can show how your customers are feeling about your offerings.
It is hard to cull this list. It is a perfect analysis. Patricia sums it up best, “All these symptoms point to the same root cause – disconnected leadership at the top!”
Conversion. Diminishing foot traffic may be a new reality for many stores, big and small. Flat to shrinking conversion is the path to a GOB sale (going out of business). A bump in conversion suggests being more right, more often on both product and selling. And there may need to be a shift in product content. Basics that are easily bought online may taper off in-store. Assortments may have to skew more to a “treasure hunt” profile. Higher risk? Yep. But necessary. Plan accordingly.
Agreed Jeff. Foot traffic is only valuable if it gets converted into a sale — declining conversion rates is a telltale sign that the retailer has serious problems.
Great job Bob as expected. Some of my targeting centers on merchandise age and turn, and the big one, as one old banker preached to me: “cash flow, nothing more.”
These are the challenges that all retailers and client-facing service businesses face. Fundamentally, it’s all about the customer experience across every physical and digital shopping channel. Any retailers or brands who are not laser-focused on driving an outstanding customer experience will be in this danger zone.
The one area I would call out in the age of the customer is that retailers and brands have to have a purpose or a vision that extends beyond the actual product or service (i.e. Patagonia, Lululemon, etc). That vision/sense of purpose has to seamlessly extend throughout the operations, from the C-suite on down to the most important part of a retail business, the store associates. Without a sense of purpose or belief to motivate them, the customer experience will be negatively impacted.
It may seem somewhat technical, but a retailer that has both an online presence and physical stores, and either doesn’t show store inventory or shows it and it’s inaccurate. This doesn’t necessarily mean “failing” but this to me is a red flag that they are behind the times, and points to a broader issue of not adapting to the times and meeting customers’ expectations (which goes to the KPI point above).
Within the area of discount reliance, a big warning sign is when a retailer moves from a longstanding discount (say 20 percent) to a progressively deeper one (30 percent and then 40 percent). Increasing the cadence is also a big red flag.
Yes, can you say GAP?
One thing missed was loss of market share. Even if your sales increase, but at a slower rate than the overall market for your products, you’re losing customers.
I totally agree with all of the points here. However, I think that retailers will have to bite the bullet and close more stores. We are dramatically over-retailed in this country by a long way as compared to other developed countries. Traditionally, retailers have looked to close underperforming stores. This is not the right formula. A more logical approach would be to understand the makeup of the successful stores in terms of geographic location and then re-calculate how the underperforming store are doing in comparison As an example, there might be too many stores within a specific retail radius to survive. While it’s always good to go fishing where the fish are it’s also always good to expand the pond.
A common theme is a lack of focus on what consumers actually want. Sears and Victoria’s Secret prove it’s harmful for retail decision makers to ignore evolving consumer needs and macro market trends due to complexity and complacency (“this is how we’ve always done things”). Excessive debt sank Toys “R” Us, leaving too few resources to invest in technology upheaval, and allowing rivals with deep pockets to swoop in. Finally, consistently seeing more associates than customers in the stores was a clear signal that Target wouldn’t last long in Canada (2013-2015).
The biggest factor to me is: they don’t change. You have to be careful with that assessment though because many retailers have great PR firms or try things in one store and get on the front page of a publication. But look under the covers and you’ll see. Has J.C. Penney changed at all? Despite the hype, has Macy’s really changed? Has Walgreens changed? The list goes on.
I can add two more telltale signs that a retail business is failing:
One – The revolving door of retail senior management. If the average tenure of the executive team is 2-3 years, there is no way a clear strategic path can be set to revive the retailer. All this short-term tenure does to the retailer employees is a “recreate the wheel scenario” over and over again from the new executive team.
Two – A retailer starts a deep discount promotion plan to increase store traffic, hoping to increase sales. However, after a handful of months the deep discounts are pulled back when gross profit tanks. Retail prices go up, promotion tactics are reduced for the sake of making more gross profit for the year. Then the retailer repeats the cycle.
Both of these telltale signs are just vicious cycles that upsets the employees and customers and ultimately speeds up the demise of the retailer.
What made a good store in 2000 and what works today are a reflection of social change. Several key points — does senior management spend time on the floor during peak hours? How much information and elbow room is being given to store managers? How is local versus chain wide being handled. How much social media is store versus chain based? How successful is an individual location is connecting to the community it serves? And most importantly — are the employee bathrooms clean? That’s where customer service starts. 😉
While I agree that all of these, particularly in combination, can be symptoms of trouble, I couldn’t help but notice that (1) and (3) are actually business models.
Lots of good points brought up here. As an owner of a small supermarket, I would be gone by now if I did not embrace change. Focusing on perishables has kept us going, and my employees know how to treat our customers better than the big box stores.
Even with all the changes, the focus on deep discounts in our area has driven profit margins, falling to where the point of breaking even is a good year. When you live in a very poor area, in just the last 10 years at least 20 new Dollar General stores and two major expansions at the local Aldi have driven out 10 grocery stores, leaving just 3. That is common in rural rust belt towns across our area. Staying sharp on the core values and some key thoughts from Bob will give you a chance to succeed and I’ll take that to heart, as I plan to stick around a few more years. Have a great day everyone.
Solid list, overall! Expanding on the third and fourth point, another way to see the red flags of a dying retailer is from their online presence. A retail store that can’t keep up with employee churn may eventually remove online job listings, and occasionally go completely dark in locations that were once hiring. So if a store seems understaffed but with no signs of hiring efforts, the outlook for its survival might be grim.
Additionally, online comments and reviews of a retail store are often a clear indicator of where the business is headed. Poor reviews and negative comments compound on each other, making it that much harder to keep regular customers coming back, let alone acquire new customers.