February 1, 2008
Everybody’s Doing It: Cutting Jobs, Closing Stores, etc.
Retailers are in pull back mode. Ann Taylor, Eddie Bauer, Home Depot, J.C. Penney, Sears, Starbucks and Wal-Mart are among the companies that have recently announced that they’d be taking a variety of actions to deal with what each sees as a challenging retailing environment in the months to come.
- Ann Taylor announced it would close 117 stores over the next three years
(25 in 2008) and cut its headquarters workforce by 13 percent. It also said
it would slow the pace of new unit openings, delay the launch of a new concept
and focus on opening more factory outlet locations to offer consumers lower
priced alternatives to flagship stores. - Eddie Bauer laid off 123 workers
at its corporate offices as part of a plan to cut expenses by $30 million.
Home Depot announced it would cut 500 of its roughly 5,000 employees at the
headquarters level. - J.C. Penney’s CEO Myron “Mike” Ullman said the company
would merge the buying functions for its online and store offerings and cut
up to 200 jobs. He also said the company would slow the pace of new store
openings and concentrate more on new, exclusive lines to differentiate itself
from the competition. - Sears announced the resignation of its CEO and a reorganization
of its business units. - Starbucks plans to close 100 underperforming stores,
cut back on plans to open new locations, eliminate breakfast sandwiches and
possibly introduce a $1 cup of coffee to induce trial among consumers, as
part of the company’s rebound strategy. - Wal-Mart is moving its apparel merchandising
functions to New York and laying off up to 200 people at its office in Arkansas.
John Fleming, executive vice president and chief merchandising officer for
the company, said the move was designed to “strengthen apparel relevance
and speed of product to market.”
Discussion Questions: Does it seem to you that many retailers misjudged the degree to which consumers would pull back on spending? Do you think we will be seeing many more announcements about layoffs, store closings, etc. from retailers? Generally speaking, are the retailers cutting back now going to be in a better or worse competitive position as a result of their actions when the economy picks up again?
- AnnTaylor to close stores, cut jobs, slow openings – Reuters
- Eddie Bauer lays off 123 – Seattle Post-Intelligencer
- Home Depot to lay off 10% of headquarters staff – The Atlanta Journal-Constitution
- Sears Holdings to Introduce Revised Internal Management and Organizational Structure – Sears Holdings Corporation/PRNewswire-FirstCall
- Letter to Partners – Starbucks
- Wal-Mart moving apparel function – Arkansas Democrat-Gazette
BrainTrust
Recent Discussions
Discussion Questions
Poll
Moderation in spending and being efficient allows businesses to remain competitive and to provide their customers more value for their money (economic slowdowns imply consumers have less money to spend, so if you are able to provide more for slightly less without compromising quality you will have a better chance of retaining your share of your consumers wallet and maybe expand it).
Another factor that may have caused retailers to misjudge the consumer demand trajectory may have been the spur in spending through the housing boom years driven by Home Equity withdrawal (Total US revolving Home Equity credit doubled from $300 Billion to $500 Billion from Jan ’04 to December ’06–see article “Economics of Consumer Demand”).
Many of the nation’s largest retailers see this as a time when they can close underperforming stores without being judged too harshly by the public and investors. For several retailers, this year can be a cleansing process that could put them in a stronger position in 2009.
I am curious to see how all of this affects the small retailer. A recent press release sponsored by the American Independent Business Alliance showed some nice growth for small retailers nationally during the holiday sales period. This despite the fact that everyone else is citing a slump.
I am tired of hearing about the chain and big box woes when for the last how many ever decades they have worked to destroy the retail fabric (small business) of our country.
I think the closings will continue to give small retailers and entrepreneurs the chance to shine–and demonstrate great customer service skills.
To paraphrase an old saying, “When the going gets tough, many retailers start slashing operational costs.” Ironically, cost slashing usually exposes a retailer to even greater risks instead of fortifying it against economic uncertainties. True some of the cost-cutting is necessary in the over stored world we live in. However there is a real opportunity right now for retail to thrive by spending (really investing) some money instead.
There are plenty of opportunities to gain share in today’s market. Possible gains, however, require aggressive actions. And, any gains will be even more significant if competitors concurrently pull back on their programs and staffing following the cost-cutting crowd. Hard times offer the perfect opportunity to increase market share! Here are three ways:
1. Sales Increase as Conversion Rates Rise;
2. Sales Increase as Suggestive Selling Is Employed;
3. Sales Increase as Customers’ Experiences Improve.
All you have to do is invest in your sales processes and the experience they deliver to your customers. Even in today’s marketplace, customers still have money, but they will become more selective–they will spend it with those retailers who offer them a better experience, no matter what.
First of all, a little bit of economics 101 might be in order here. The definition of a recession is a negative economy lasting more than two quarters (six months in non-economic speak). Even according to Websters it is defined as “The technical indicator of a recession is two consecutive quarters of negative economic growth as measured by a country’s GDP.” The key here is negative, and two consecutive quarters. There have been no economic measurement whether GDP or otherwise has been ‘negative’ in the last six months. None. The economy has not gone backwards. Many in the media, here, and else where tend to describe slowed growth as no growth at all. For example, just go back to discussions a month or so ago about predictions for the Christmas season. Evaluations of those predictions or results not to a certain percentage even though positive were considered by many as catastrophic or at a minimum a failure of the season. Slowed growth is not a recession. It is slowed growth.
Each one of the retailers mentioned, every single one, has issues equal to or significantly greater than the economic environment to account for their decision. It should be no surprise that any of these mentioned are scaling back or experiencing difficulty. As a collective group we’ve discussed each one from time to time and as a group can enumerate each one’s specific issues.
Yet, there is an economic factor here that should not be ignored. In a slowed growth economy, each one of these retailers is at a distinct disadvantage. When the economic environment requires consumers to make choices, these retailers would fail somewhat, if not completely. As the economy continues to slow its growth for the coming months the best retailers will be sustained and rewarded. If you aren’t at your best prior to a slowed growth time, its a difficult time to make adjustments. Yet, the adjustments were necessary in spite of the economy because sooner or later consumers make choices regardless of the economic conditions.
Think about it. Sears? Starbucks? Home Depot? Wal-Mart? Haven’t all of these retailers have been subject of discussion in the past months with respect to issues relating to difficulties? These have been evident now for months and months for Wal-Mart. It’s been just days since we’ve discussed the issues of Starbucks. A slowed growth period only makes their issues more exponentially pronounced and thus due to forced choices, consumers are sending them the message. It’s only louder when there is less slush to hide it under.
Take a look at the ‘best of the best’ retailers and see if you would answer the question the same way. That is the case where the ‘best of the best’ aren’t simply defined by being big. Take a look at the retailers we continue to marvel at daily. Their results are significantly different.
The only one mentioned here that is really a retailer of great admiration from my point of view is Starbucks. The distinct difference between them and the rest of the list is that they clearly know what their issues are and have clearly spoken of them. They know they’ve experienced trouble as a result of their growth and other issues. If they can correct those issues, they’ll win. The others? Well, we’ve been talking about them for years, not months.
Slowed growth will definitely make the real cream rise to the top. Let’s pay real attention over the coming months. The ‘best of the best’ are about to teach us something. Worth learning? At a minimum, it will be interesting. Consumers will teach us so much more during this time that can position for real gains when stronger growth returns.
There is no question that consumers have pulled back over the past few months. But that has only served to demonstrate that many retailers have been operating on a razor’s edge, with little room for error or the ability to handle a downturn.
To me, it’s all about the race to the bottom. It’s genuinely hard to create a compelling value proposition to drive and differentiate yourself, and it’s a lot easier and enticing to try to drive traffic through sales and promotions. Once you’re out on the slippery slope of sales and promotions and competing on price, once a new and exciting format begins to age and is not so new or exciting anymore, the name of the game is volume and market share and cost cutting, in an effort to squeeze out whatever margin can be made.
Some of this may be due to the fact that we’ve been over-stored for a generation, but that’s due in large measure to the markets incessant focus on comp store sales as a measure of health and viability. It’s tough to continue to drive comp store sales without a steady flow of new stores coming on line and eventually contributing to comp store sales increases as they mature.
Retailers who are cutting back or consolidating their operations are pursuing the only financially viable option they have. If all they do is cut back, then these retailers will not be any better positioned when the consumer dollar returns. On the other hand, those retailers who take the opportunity to freshen their approach, focus on reinvigorating their value proposition and customer experience, will be well positioned to do well when the economy turns.
Boy, that consumer spending, it’s fallen so much that its …uh, well, actually it’s not falling at all; it’s just not growing as fast as it was (or as fast as some would like.) Are we heading into–or already in–a minor recession? Perhaps; but that can only be judged by looking at the country/economy as whole, not by cherry-picking anecdotes, as there will always be firms contracting, even in boom times.
Just this week we had a question about whether or not the media is playing Cassandra…this seems to be Exhibit A of that.
I don’t think anyone can honestly say they foresaw the severity of the pullback in consumer spending. The current spending slowdown is likely to continue for the next few months at least. I do think we will hear of more layoffs, closings, etc. The weaker retailers will likely fold, or be bought.
But even the stronger retailers will use this time as an opportunity for “pruning” their structure. This can mean a desired restructuring that would be difficult to explain to internal and external stakeholders during rosier times. It can and should include trimming poor performing locations from the real estate portfolio or at least renegotiating rents.
The JCPenney example is a good one, where Ullman is making prudent structural changes that will strengthen their competitive position as the economy improves.
This has nothing to do with misjudging consumers’ spending habits. The economy is just fine. Retailers are losing sales, closing stores, and laying off employees because they have a bad business model or are mismanaged. The competition is simply outsmarting them. Don’t blame the economy, the weather, the housing market or anything else.
Of course we are going to see more announcements of store closings and layoffs. That’s what happens in business. We have winners and we have losers. The scenery is constantly changing with new companies opening while others go to the big retail heaven in the sky.
The economy is great right now as it always is. You just need to be on the right side of it. Most likely, companies that are scaling back will be worse off. Scaling back is a symptom of poor management and a poor business model. Generally when you fall behind in retail, you don’t catch up. Instead you fall off. Sure now then we hear of a comeback story but they are rare.
I agree with all of the comments that have talked about there being too many retail locations for the population; some of the numbers quoted above support the fact.
Change is inevitable but growth is optional. Closing stores and repositioning are positive moves.
Now, will retailers learn that in a declining market you need to not only cut costs but also to use your resources more effectively? I think most retailers are looking at controlling costs but how many of them are looking at better ways to provide service to the customers they have?
Those who will win will not do what Circuit City did. Now is the time to be looking to build the best staff possible. Go after all of those companies that are cutting back and get their best people to come to work for you. If things are changing, you should go to work for the ones who are changing to be stronger.
Let’s not totally blame the economy and the consumers’ bank accounts. How many stores from coffee shops to apparel to bookstores have oversaturated the market over the past decade resulting in loss of single store revenues within their own chains? A major bookstore recently built a huge store a mile from my home on what was recently farmland. We could already purchase a book at this same chain at their storefront only eight miles away in one direction and at another only six miles away in another direction. It is hard to believe that all three will survive, especially when pretty much everyone I know buys their books online.
Retailers really need to begin to understand that their world has changed forever and make adjustments to make the experience more compelling, independent of the state of the economy. For many consumers shopping just is not as much fun as it used to be. Shared tales of surly sales staffs, long checkout lines, fear of compromise of credit card information, dangerous parking lots, language problems, all contribute to the fact that “going shopping” is simply not the great American pastime anymore.
Additionally, multiple cable channels and applications on the internet vie for people’s leisure time and often win out. Kids are texting to keep in touch with their buddies rather than hanging out at the mall as they all did only a few short years ago.
As painful as it is to have selected store closings, these adaptations will in the long term be beneficial.
Everyone’s going to pull in their horns a bit. If you go too far then you’re just shooting yourself in the foot–or elsewhere.
J.C. Penney is eliminating some jobs but it is also in the midst of rolling out a new Ralph Lauren line across multiple categories. They are sharpening their buying, focusing on store expansion and keeping their people well motivated. Sears, on the other hand, is in the process of sprucing up the operation so management can sell off pieces.
I agree the sub prime meltdown is a huge mess. The shame is that good people will lose their homes and speculators will simply walk away.
There is something of an upside to all this. Every once in a while the economy needs a correction. This is the latest one and hopefully it won’t last too long or go too deep. But it will cause people to consider debt which is at record levels and continuing to escalate.
On the retail side, it’s time to rethink expansion. First of all, the U.S. already has twice as much retail space as it really needs–something like 19 square feet per person, according to studies I’ve seen. The key is to take that space and innovate–less can be more.
And with the real estate market in disarray–even some commercial space–now is the time for retailers to get out of some leases or renegotiate.
It’s called a recession. You can’t get blood from a stone. The collapse of the sub prime market, a jump in foreclosures and the volatility of stock markets around the world are all conspiring to reduce spending. Could retailers have done a better job anticipating this? Sure, but who bets to lose?
Len makes an extra point that the retail industry is probably over-stored at this point. This is a transformational time; retailers need to work harder for growth and better define their value propositions. Rapid expansion covers up a lot of warts, but even Starbucks is finding that after that bubble bursts you have to win with a mix of exciting products, service and experience.
The other fundamental change which JCPenney is acknowledging with the merging of its buying teams, is that the online world will have a greater influence on overall business moving forward. Not only in pure e-commerce sales, but also for the cross-channel impacts of research and interactive shopping.
At the recent NRF conference a presenter stated that 25,000 specialty stores had opened since 2000.
I think it is safe to say that is more than we need!
Good times hide waste and complacency. Times like this are a good opportunity for some good, hard self-examination. When the going gets tough….
Companies that address this as an opportunity will come out of it with leaner, meaner, more efficient and more focussed operations. Those that don’t will just have to answer to their shareholders and creditors.
For the most part, the trimming described in the current spate of news stories about retailers looks to me like prudent response to the shifting economic sands.
Chain retailers are hooked on growth. This is paradoxically because of the prevalent use of same store (stores open more than one full year) sales growth as an indicator of corporate value. Since most new stores continue to grow sales rapidly in year two, this builds in an appearance of growth that is reflected in share prices. The faster a chain expands, the stronger its same-store metric looks, due to this “second year effect.”
As a result retailers cannot afford to slow their rates of new openings without taking it on the chin in the stock market.
So shrewd retailers will take advantage of outside events like the present economic “correction” as an opportunity to trim away some non-productive stores and other assets without being penalized by investors. In boom times, this would be taken as a sign of weakness, but in hard times, it’s regarded as fiscal prudence.
Sasha makes a good point about business using this environment as “cover” for cleaning house. As anyone who has ever managed an annual P&L that is tied to your annual bonus structure knows, “the best way to have a really good year is to have a really bad year first….”
Before this perception recession is over (no need to argue whether the economic definitions are met–it’s an election year and the media wants change, so it’s a recession no matter what) I predict it will be responsible for even more business ills than global warming and 9/11 combined.
Excellent points all. I would only add:
1. The continued move toward online alternatives (sometimes from within a multi-channel retailer) leaves fewer and fewer customers to cover the fairly fixed costs of stores. This will be a dilemma that all retail will need to deal with.
2. These types of pull-backs tend to take two forms for all consumers. On the one hand they simply delay, defer purchases. On the other they look for substitute or less expensive alternatives. The world NEVER returns to its prior state. The closer alternative and substitute solutions come to the quality and service levels the consumer is used to, the more of the marbles those alternatives will keep…until the next cycle.
3. Most of the described actions follow the same scripts. Cut bodies, go centralized, go decentralized, cut underperforming units. Companies that look at using these cycles to re-invent themselves and do the HARD THINKING necessary to tackle points one and two while at the same time re-inventing their cost and marketing propositions can end up with a much bigger number of marbles at the end of this readjustment, and at the same time a sustainable model to keep those marbles.
If the people who work for you cannot afford to shop you, what is the inevitable result?
The retail chain cutbacks already announced don’t go far enough. And they should’ve been cutting even if the economy was robust. For example: Starbucks has 15,765 stores worldwide, of which 11,168 are in the USA. They only found 100 to close? The other 15,665 are all expected to be profitable? Well-run retail chains need to look for cutbacks every day, all year, every year. Not just when the economy is lousy. And the cutbacks should be ambitious, not tentative. Merchandise is marked down daily. Why not evaluate your locations, infrastructure, and processes daily?
Some retailers may have misjudged but now is not the time to cut labour! If anything, chains need to kick it up a few notches to get customers spending. A better solution would be to rearrange labour resources to better serve the customer.
Based on the same store sales I am seeing, many of us underestimated the impact of the sluggish economy on consumer spending.
More Discussions
Has Same-Day Delivery Become an Expectation Across Retail?
Are expectations around retail delivery speed in flux?OpenAI Names the Infrastructure Standard for Agentic Commerce
Will OpenAI or Google (or another entity) set the gold standard for agentic commerce?Is Five Below Poised For Even Greater Growth?
Five Below is hitting serious growth numbers. Can this trend continue?
Moderation in spending and being efficient allows businesses to remain competitive and to provide their customers more value for their money (economic slowdowns imply consumers have less money to spend, so if you are able to provide more for slightly less without compromising quality you will have a better chance of retaining your share of your consumers wallet and maybe expand it).
Another factor that may have caused retailers to misjudge the consumer demand trajectory may have been the spur in spending through the housing boom years driven by Home Equity withdrawal (Total US revolving Home Equity credit doubled from $300 Billion to $500 Billion from Jan ’04 to December ’06–see article “Economics of Consumer Demand”).
Many of the nation’s largest retailers see this as a time when they can close underperforming stores without being judged too harshly by the public and investors. For several retailers, this year can be a cleansing process that could put them in a stronger position in 2009.
I am curious to see how all of this affects the small retailer. A recent press release sponsored by the American Independent Business Alliance showed some nice growth for small retailers nationally during the holiday sales period. This despite the fact that everyone else is citing a slump.
I am tired of hearing about the chain and big box woes when for the last how many ever decades they have worked to destroy the retail fabric (small business) of our country.
I think the closings will continue to give small retailers and entrepreneurs the chance to shine–and demonstrate great customer service skills.
To paraphrase an old saying, “When the going gets tough, many retailers start slashing operational costs.” Ironically, cost slashing usually exposes a retailer to even greater risks instead of fortifying it against economic uncertainties. True some of the cost-cutting is necessary in the over stored world we live in. However there is a real opportunity right now for retail to thrive by spending (really investing) some money instead.
There are plenty of opportunities to gain share in today’s market. Possible gains, however, require aggressive actions. And, any gains will be even more significant if competitors concurrently pull back on their programs and staffing following the cost-cutting crowd. Hard times offer the perfect opportunity to increase market share! Here are three ways:
1. Sales Increase as Conversion Rates Rise;
2. Sales Increase as Suggestive Selling Is Employed;
3. Sales Increase as Customers’ Experiences Improve.
All you have to do is invest in your sales processes and the experience they deliver to your customers. Even in today’s marketplace, customers still have money, but they will become more selective–they will spend it with those retailers who offer them a better experience, no matter what.
First of all, a little bit of economics 101 might be in order here. The definition of a recession is a negative economy lasting more than two quarters (six months in non-economic speak). Even according to Websters it is defined as “The technical indicator of a recession is two consecutive quarters of negative economic growth as measured by a country’s GDP.” The key here is negative, and two consecutive quarters. There have been no economic measurement whether GDP or otherwise has been ‘negative’ in the last six months. None. The economy has not gone backwards. Many in the media, here, and else where tend to describe slowed growth as no growth at all. For example, just go back to discussions a month or so ago about predictions for the Christmas season. Evaluations of those predictions or results not to a certain percentage even though positive were considered by many as catastrophic or at a minimum a failure of the season. Slowed growth is not a recession. It is slowed growth.
Each one of the retailers mentioned, every single one, has issues equal to or significantly greater than the economic environment to account for their decision. It should be no surprise that any of these mentioned are scaling back or experiencing difficulty. As a collective group we’ve discussed each one from time to time and as a group can enumerate each one’s specific issues.
Yet, there is an economic factor here that should not be ignored. In a slowed growth economy, each one of these retailers is at a distinct disadvantage. When the economic environment requires consumers to make choices, these retailers would fail somewhat, if not completely. As the economy continues to slow its growth for the coming months the best retailers will be sustained and rewarded. If you aren’t at your best prior to a slowed growth time, its a difficult time to make adjustments. Yet, the adjustments were necessary in spite of the economy because sooner or later consumers make choices regardless of the economic conditions.
Think about it. Sears? Starbucks? Home Depot? Wal-Mart? Haven’t all of these retailers have been subject of discussion in the past months with respect to issues relating to difficulties? These have been evident now for months and months for Wal-Mart. It’s been just days since we’ve discussed the issues of Starbucks. A slowed growth period only makes their issues more exponentially pronounced and thus due to forced choices, consumers are sending them the message. It’s only louder when there is less slush to hide it under.
Take a look at the ‘best of the best’ retailers and see if you would answer the question the same way. That is the case where the ‘best of the best’ aren’t simply defined by being big. Take a look at the retailers we continue to marvel at daily. Their results are significantly different.
The only one mentioned here that is really a retailer of great admiration from my point of view is Starbucks. The distinct difference between them and the rest of the list is that they clearly know what their issues are and have clearly spoken of them. They know they’ve experienced trouble as a result of their growth and other issues. If they can correct those issues, they’ll win. The others? Well, we’ve been talking about them for years, not months.
Slowed growth will definitely make the real cream rise to the top. Let’s pay real attention over the coming months. The ‘best of the best’ are about to teach us something. Worth learning? At a minimum, it will be interesting. Consumers will teach us so much more during this time that can position for real gains when stronger growth returns.
There is no question that consumers have pulled back over the past few months. But that has only served to demonstrate that many retailers have been operating on a razor’s edge, with little room for error or the ability to handle a downturn.
To me, it’s all about the race to the bottom. It’s genuinely hard to create a compelling value proposition to drive and differentiate yourself, and it’s a lot easier and enticing to try to drive traffic through sales and promotions. Once you’re out on the slippery slope of sales and promotions and competing on price, once a new and exciting format begins to age and is not so new or exciting anymore, the name of the game is volume and market share and cost cutting, in an effort to squeeze out whatever margin can be made.
Some of this may be due to the fact that we’ve been over-stored for a generation, but that’s due in large measure to the markets incessant focus on comp store sales as a measure of health and viability. It’s tough to continue to drive comp store sales without a steady flow of new stores coming on line and eventually contributing to comp store sales increases as they mature.
Retailers who are cutting back or consolidating their operations are pursuing the only financially viable option they have. If all they do is cut back, then these retailers will not be any better positioned when the consumer dollar returns. On the other hand, those retailers who take the opportunity to freshen their approach, focus on reinvigorating their value proposition and customer experience, will be well positioned to do well when the economy turns.
Boy, that consumer spending, it’s fallen so much that its …uh, well, actually it’s not falling at all; it’s just not growing as fast as it was (or as fast as some would like.) Are we heading into–or already in–a minor recession? Perhaps; but that can only be judged by looking at the country/economy as whole, not by cherry-picking anecdotes, as there will always be firms contracting, even in boom times.
Just this week we had a question about whether or not the media is playing Cassandra…this seems to be Exhibit A of that.
I don’t think anyone can honestly say they foresaw the severity of the pullback in consumer spending. The current spending slowdown is likely to continue for the next few months at least. I do think we will hear of more layoffs, closings, etc. The weaker retailers will likely fold, or be bought.
But even the stronger retailers will use this time as an opportunity for “pruning” their structure. This can mean a desired restructuring that would be difficult to explain to internal and external stakeholders during rosier times. It can and should include trimming poor performing locations from the real estate portfolio or at least renegotiating rents.
The JCPenney example is a good one, where Ullman is making prudent structural changes that will strengthen their competitive position as the economy improves.
This has nothing to do with misjudging consumers’ spending habits. The economy is just fine. Retailers are losing sales, closing stores, and laying off employees because they have a bad business model or are mismanaged. The competition is simply outsmarting them. Don’t blame the economy, the weather, the housing market or anything else.
Of course we are going to see more announcements of store closings and layoffs. That’s what happens in business. We have winners and we have losers. The scenery is constantly changing with new companies opening while others go to the big retail heaven in the sky.
The economy is great right now as it always is. You just need to be on the right side of it. Most likely, companies that are scaling back will be worse off. Scaling back is a symptom of poor management and a poor business model. Generally when you fall behind in retail, you don’t catch up. Instead you fall off. Sure now then we hear of a comeback story but they are rare.
I agree with all of the comments that have talked about there being too many retail locations for the population; some of the numbers quoted above support the fact.
Change is inevitable but growth is optional. Closing stores and repositioning are positive moves.
Now, will retailers learn that in a declining market you need to not only cut costs but also to use your resources more effectively? I think most retailers are looking at controlling costs but how many of them are looking at better ways to provide service to the customers they have?
Those who will win will not do what Circuit City did. Now is the time to be looking to build the best staff possible. Go after all of those companies that are cutting back and get their best people to come to work for you. If things are changing, you should go to work for the ones who are changing to be stronger.
Let’s not totally blame the economy and the consumers’ bank accounts. How many stores from coffee shops to apparel to bookstores have oversaturated the market over the past decade resulting in loss of single store revenues within their own chains? A major bookstore recently built a huge store a mile from my home on what was recently farmland. We could already purchase a book at this same chain at their storefront only eight miles away in one direction and at another only six miles away in another direction. It is hard to believe that all three will survive, especially when pretty much everyone I know buys their books online.
Retailers really need to begin to understand that their world has changed forever and make adjustments to make the experience more compelling, independent of the state of the economy. For many consumers shopping just is not as much fun as it used to be. Shared tales of surly sales staffs, long checkout lines, fear of compromise of credit card information, dangerous parking lots, language problems, all contribute to the fact that “going shopping” is simply not the great American pastime anymore.
Additionally, multiple cable channels and applications on the internet vie for people’s leisure time and often win out. Kids are texting to keep in touch with their buddies rather than hanging out at the mall as they all did only a few short years ago.
As painful as it is to have selected store closings, these adaptations will in the long term be beneficial.
Everyone’s going to pull in their horns a bit. If you go too far then you’re just shooting yourself in the foot–or elsewhere.
J.C. Penney is eliminating some jobs but it is also in the midst of rolling out a new Ralph Lauren line across multiple categories. They are sharpening their buying, focusing on store expansion and keeping their people well motivated. Sears, on the other hand, is in the process of sprucing up the operation so management can sell off pieces.
I agree the sub prime meltdown is a huge mess. The shame is that good people will lose their homes and speculators will simply walk away.
There is something of an upside to all this. Every once in a while the economy needs a correction. This is the latest one and hopefully it won’t last too long or go too deep. But it will cause people to consider debt which is at record levels and continuing to escalate.
On the retail side, it’s time to rethink expansion. First of all, the U.S. already has twice as much retail space as it really needs–something like 19 square feet per person, according to studies I’ve seen. The key is to take that space and innovate–less can be more.
And with the real estate market in disarray–even some commercial space–now is the time for retailers to get out of some leases or renegotiate.
It’s called a recession. You can’t get blood from a stone. The collapse of the sub prime market, a jump in foreclosures and the volatility of stock markets around the world are all conspiring to reduce spending. Could retailers have done a better job anticipating this? Sure, but who bets to lose?
Len makes an extra point that the retail industry is probably over-stored at this point. This is a transformational time; retailers need to work harder for growth and better define their value propositions. Rapid expansion covers up a lot of warts, but even Starbucks is finding that after that bubble bursts you have to win with a mix of exciting products, service and experience.
The other fundamental change which JCPenney is acknowledging with the merging of its buying teams, is that the online world will have a greater influence on overall business moving forward. Not only in pure e-commerce sales, but also for the cross-channel impacts of research and interactive shopping.
At the recent NRF conference a presenter stated that 25,000 specialty stores had opened since 2000.
I think it is safe to say that is more than we need!
Good times hide waste and complacency. Times like this are a good opportunity for some good, hard self-examination. When the going gets tough….
Companies that address this as an opportunity will come out of it with leaner, meaner, more efficient and more focussed operations. Those that don’t will just have to answer to their shareholders and creditors.
For the most part, the trimming described in the current spate of news stories about retailers looks to me like prudent response to the shifting economic sands.
Chain retailers are hooked on growth. This is paradoxically because of the prevalent use of same store (stores open more than one full year) sales growth as an indicator of corporate value. Since most new stores continue to grow sales rapidly in year two, this builds in an appearance of growth that is reflected in share prices. The faster a chain expands, the stronger its same-store metric looks, due to this “second year effect.”
As a result retailers cannot afford to slow their rates of new openings without taking it on the chin in the stock market.
So shrewd retailers will take advantage of outside events like the present economic “correction” as an opportunity to trim away some non-productive stores and other assets without being penalized by investors. In boom times, this would be taken as a sign of weakness, but in hard times, it’s regarded as fiscal prudence.
Sasha makes a good point about business using this environment as “cover” for cleaning house. As anyone who has ever managed an annual P&L that is tied to your annual bonus structure knows, “the best way to have a really good year is to have a really bad year first….”
Before this perception recession is over (no need to argue whether the economic definitions are met–it’s an election year and the media wants change, so it’s a recession no matter what) I predict it will be responsible for even more business ills than global warming and 9/11 combined.
Excellent points all. I would only add:
1. The continued move toward online alternatives (sometimes from within a multi-channel retailer) leaves fewer and fewer customers to cover the fairly fixed costs of stores. This will be a dilemma that all retail will need to deal with.
2. These types of pull-backs tend to take two forms for all consumers. On the one hand they simply delay, defer purchases. On the other they look for substitute or less expensive alternatives. The world NEVER returns to its prior state. The closer alternative and substitute solutions come to the quality and service levels the consumer is used to, the more of the marbles those alternatives will keep…until the next cycle.
3. Most of the described actions follow the same scripts. Cut bodies, go centralized, go decentralized, cut underperforming units. Companies that look at using these cycles to re-invent themselves and do the HARD THINKING necessary to tackle points one and two while at the same time re-inventing their cost and marketing propositions can end up with a much bigger number of marbles at the end of this readjustment, and at the same time a sustainable model to keep those marbles.
If the people who work for you cannot afford to shop you, what is the inevitable result?
The retail chain cutbacks already announced don’t go far enough. And they should’ve been cutting even if the economy was robust. For example: Starbucks has 15,765 stores worldwide, of which 11,168 are in the USA. They only found 100 to close? The other 15,665 are all expected to be profitable? Well-run retail chains need to look for cutbacks every day, all year, every year. Not just when the economy is lousy. And the cutbacks should be ambitious, not tentative. Merchandise is marked down daily. Why not evaluate your locations, infrastructure, and processes daily?
Some retailers may have misjudged but now is not the time to cut labour! If anything, chains need to kick it up a few notches to get customers spending. A better solution would be to rearrange labour resources to better serve the customer.
Based on the same store sales I am seeing, many of us underestimated the impact of the sluggish economy on consumer spending.