Why do so many retailers fail? (fees, insurance, sales, licenses)

[John23]

Saw this in the New York Times, "Retailing Chains Caught in a Wave of Bankruptcies"

Retailing Chains Caught in a Wave of Bankruptcies - New York Times

Then all the department stores, stores in malls, restaurant chains, etc that go out of business or reorganize.

It seems like demand for goods (clothing, toys, furniture, appliances) wouldn't change very much, year to year. Even with a recession. Kids are still going to play with toys. Or people always need to eat.

And most of the past recessions we've had have been light (in the last 20 years). We haven't had a depression or 20% unemployment.

And the population doesn't go down. People always have a need to get out of the house. The weather is basically the same as its always been. If you read retailing stories in the paper, sometimes they'll blame weak sales on the weather...a storm, ice. But there have always been storms. Or Easter moved up. Or Thanksgiving is closer to Christmas....thus, less days to shop. But the calendar has always moved around. Is that new?

Just an excuse for poor management? Weak inventory control? Late catching trends? Ineptitude by people that dont know retailing?

Why do stores all follow pretty much the same strategy? Same selection, same customer service. I wonder about the strategy of trying to appeal to everyone. Does it still work?

[HappyTexan]

People have stopped spending on non-essential items.
Stores like Walmart are not in trouble. The luxury stores go first..like the Sharper Image. Like stores may merge.

People don't NEED to get out of the house and shop. When their extra money is gone the shopping stops.

[Bazzwell]

Some fail to adapt to changing times, others can't adapt at all. Bad management, over expansion, under expansion. Everyone is a different story. My take on a couple...

Failing to adapt or unable to.....

There was nothing wrong per se with places like Jamesway, Hills, Grants, Zayres, Ames, whatever your area used to have. What was wrong was failure to move fast enough when other shopping areas developed nearby, sometimes right next door. Our area lost these chains within a couple years after Wal-Mart started coming in. Bigger, brighter, more. The fickle shopper went for the latest big thing. The old chains were stuck where they were at, usually in outdated plazas or on once busy suburban highways that got reduced to local feeder status. Down they tumbled.

No ability to adapt due to changing tastes...

How many stand-alone record stores do you have left? There's less than a handful of regional chains left that still sell primarily music and video related product. The kamikaze dive of the music industry, online sales and on-demand technology have left them with nothing to offer. There may indeed come a time when you won't be able to buy a cd in a physical store, if you even consider such a purchase now.

Again, each business has it's own particular reasons for failing but these are the ones I've noticed over the years.

[appalachiangirl]

I still miss the Hills stores. I use to work in one when I was right out of high school. I hear a lot of people say they miss shopping there. In retail it seems the "big fish eats the smaller fish" philosophy.

[Bazzwell]

Originally Posted by appalachiangirl

I still miss the Hills stores. I use to work in one when I was right out of high school. I hear a lot of people say they miss shopping there.

So did my then high-school girlfriend, late seventies. The hours I must have spent in the parking lot waiting for her to get done. Good store, good chain.

[StealthRabbit]

Making it in retail is very tough, profit margins slim and competition tough. WMT can sell may items cheaper than the competition can buy it.

Locations - are key, but so is proximity to WMT, or Target (they can drain your customers... 'one-stop-shopping'.)
On-line - is grabbing more business and this will increase with higher fuel and taxes, & with more folks getting on-line.
Demographics - the older generation was more faithful to spending local $ instead of China $ (yuan)
Available goods - not every retailer can efficiently buy in China, and USA goods may no longer exist
Management - employees are not as loyal, thus higher turnover and theft losses cost small companies too much. Managers are not capable of maximizing low margins.
Government regs - more forms, more taxes, more reporting... it is a major pain to have employees (and very expensive)
Advertising $$ - This has gotten very expensive as media struggles to fight the loss of revenue to web ads
Rents - Property taxes are skyrocketing - commercial rentals pay this increase directly (NNN)
Utilities - very high $'s to heat and air-con an empty store, lights alone can be $1000/month, that is a lot of shampoo (or whatever your selling...)
Wages - our state has the Highest minimum wage, and shoppers can drive 10 min to adjacent state to save 8.4% sales tax.... retailers are hurting here.


Just figure it out...monthly
$1/sf rent (cheap...)
$.50/sf taxes
$.50/sf utilities
$1/sf insurance
$150/hr for 6 employees (minimum wages + taxes + minimal bene's + Workman's comp)
12hrs/day * 30 days / month
== ~$120,000 / month in expenses for a 20,000 sf store
3-5% profit margin = $3mil sales, just to break even or... $100,000 per day...in gross sales + inventory + fees for accting, financing, licenses,
even at a 10% profit margin it is very ugly to think of the sales requirements / day

Yikes !! I will stay on the property management side, thank you very much

[One Thousand]

Originally Posted by John23

Just an excuse for poor management? Weak inventory control? Late catching trends? Ineptitude by people that dont know retailing?

Why do stores all follow pretty much the same strategy? Same selection, same customer service. I wonder about the strategy of trying to appeal to everyone. Does it still work?

Poor management is the catch-all. Bad customer service? Poor hiring. Bad selection? Inability to spot trends and customer needs and wants.

A place like Walmart is a God-send not because it's cheap with a lot of selection, but because, IMO, lack of real competition fertilized poor service, selection, prices, etc. The death of the "mom'n'pop" stores was a blessing for many of us. No more exorbitant prices and inadequate service.

Integral to Walmart was Walton's regard for people. He was a true capitalist and could see how lowering his profit margin would deliver bigger rewards for himself and customers, but other retailers are busy trying to set prices to make the most for what they sell rather than setting their prices to sell the most and make a profit... No creativity.

Walton even tells the whole strategy in "Made in America." But no one listens.

You read something like Paco Underhill's "Why We Buy" and wonder how in the world contemporary management can be so incompetent. He's handing management a laundry list of things that cause business loss... but it's always the same when you go into stores, restaurants, etc. Management just doesn't care to improve.

Retail going out of business is a failure of our culture. People, I suspect, are so preoccupied with themselves, they fail to put their ego gratification on the back burner so that they can put themselves in the customer's shoes.

[HappyTexan]

Walmart might have started off as "made in America" but it's turned into "made in China" and that hurt the US producers.

[sean98125]

One of the biggest problems, in my opinion, is overexpansion or expansion that is too rapid. In the desperate attempt to increase returns to shareholders, companies have to keep becoming more and more profitable so they start expanding beyond the point of sustainability. Their capital and labor costs outpace their sales revenue.

[Nor'Eastah]

High-end retailers do have their place - if only because so many 'high-end' customers like the status of shopping there, of wearing/carrying around brand names that are not available at Wal-Mart. However, these retailers fail to appreciate that they are "good-time Charlie's" in that they make decent profits when times are fat, and will perish when living large is no longer affordable to enough people to keep them going. In my long lost youth, I worked in 2 of those type of stores, only to see both of them disappear, within a year or so of each other. Kaput, out of business. Never heard from again.