October 17, 2008
RSR Research: Is 50 Years the Expected Useful Life for Any Retailer?
By Brian Kilcourse, Managing Partner
Through a special arrangement, presented here for discussion is an excerpt of a current article from Retail Paradox, Retail Systems Research’s weekly analysis on emerging issues facing retailers.
At the SAP Retail Forum in Las Vegas last week, author Michael Treacy stated what he saw as the ultimate paradox in retailing: everything done in early years of a company’s life sows the seed of its eventual destruction. In fact, he said, “most retailers last 30 to 50 years, and then die.” Mr. Treacy offered this solace: it could be worse! The “casual dining” business lifecycle is 20 years.
Although Mr. Treacy, co-author of the influential 1995 book entitled The
Discipline of Market Leaders: Choose Your Customers, Narrow Your Focus, Dominate
Your Market, engaged in a bit of hyperbole to make his point, he’s “directionally” correct.
Some mighty brands have fallen. Just to name a few:
- Montgomery Wards (1872-2001)
- Ralphs Grocery Stores (1873-1997; merged with
Fred Meyer) - Fred Meyer (1931-1999; merged with Kroger)
- Thrifty Payless (1919-1998; merged
with Rite Aid) - Longs Drug Stores (1938; announced sale to CVS in 9/2008)
- Albertsons (1939-2006;
split acquisition by Supervalu and private ownership) - Mervyns (1949; filed
for Chapter 11 in 7/2008)
Mr. Treacy attributed retailers’ demise to what he called “the science of
backsliding,” or putting it more bluntly, “companies lose their mojo.” According
to the author, there are four basic reasons for this:
- Poor strategic foresight;
missing shifts in the market - Management hubris
- Unforeseen challenges; something unexpected happens
- Their luck runs out
Whatever the reason, said Mr. Treacy, the result is a “regression toward the mean,” and, as every retailer knows, being “average” is a really bad place to be. Mr. Treacy stated that one of the biggest challenges that mature businesses face is the planning process itself.
“Top-down planning followed by diligent execution is killing us,” said the author. “Companies typically bland it down by over-analysis, planning and execution strategies.” The result is that they limit their ability to react to the dynamic, unpredictable business environment. Mr. Treacy stated that one-third of all the business plans that he’s been asked to advise on were “dead wrong.”
RSR research has pointed out more than once that it’s not top-down planning that’s killing retailers, but rather “fractured planning processes”. That problem consistently shows up as one of retailers’ most pressing business challenges. These findings typically relate to tactical/operational planning challenges (for example, the typical disconnect between merchandise planning and financial planning). What we can agree with is that multi-year “strategic planning” has lost a lot of its meaning in the fast-paced and highly reactive world of retail. Mr. Treacy points out that strategic planning typically has a “one-year to plan, two-three years to execute” cycle, but it’s awfully hard to see three years ahead.
Putting these two challenges together, it’s not difficult to see how retailers can get so lost. They can’t visualize the future, and their tactical/operational planning processes don’t work either.
Discussion Question: Do you similarly see a 30-to-50 year lifespan in general for retailers? If so, what factors inevitably cause a retailer’s eventual decline? If a primary issue is strategic planning, is the main problem relying on a top-down approach? Or is it fractured planning processes?
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Michael Treacy attributed some of the most valid reasons why retailers are disappearing after 30 years or so, however, it doesn’t have to happen. The business and marketing plans should be constantly re-evaluated to be sure that shifts in the market are not being missed and “mojo” is something that can be reinvigorated and refreshed with perpetual attention to solid public relations and meaningful changes.
My concern with today’s retail environment is that too many retail chains look alike and simply copy one another, and carry the same distribution in order to try to avoid risk and mistakes. That’s how the “mojo” evaporates in time.
Mr. Thayer provides us with a list of retailers who remain successful long after 50 years, which is nearly as long as the one in the article of those retailers who didn’t survive.
A retailer’s reason for being is never safe or certain. It is very likely true that as long as a retailer can deliver the “it” that made them successful, they will survive. However, maintaining the “it” alone is not enough to ensure success. As generations change, attitudes change, technology changes and lifestyles change. The “it” that was once so relative may no longer be valued. New retail concepts begin to fill the niche that is created by either a new generation of shoppers or to fill the needs that existing retailers don’t address, due to these changes in lifestyle, economics, technology and so on.
Retailers must remain relevant, and holding onto what made them successful initially may not be the answer to long term success. As always it is the leaders of the company who must challenge and lead the company to remain meaningful. This is the ultimate challenge to longevity, the quality and vision of the successive management teams and their ability to lead their companies into the future.
In Marketing 101, one of the first topics studied is product life cycle. It is true. It exists for almost everything, including retailers.
I don’t necessarily agree with Mr. Treacy’s list. I would exclude mergers and acquisitions. I would rather look leading retailers over the last 60-years and how the lists have changed. A&P, to Safeway to Kroger. Montgomery Ward, to Sears to Kmart to Walmart. Howard Johnson’s to McDonald’s. Department stores to specialty stores.
As Phil Rubin previously noted, “One sure way NOT to fail is to build and sustain a valuable customer base.” That is absolutely correct. A retailer represents something in a consumers mind. The retailer should not let that waiver. Continual changes in the BRAND devalue and confuse what the retailer represents to the consumer. There is one problem with this, the consumer ages and dies. “It IS your father’s Oldsmobile.”
My elderly mother frequents Lord & Taylor, as she has for the last 50 or more years. I doubt if my daughter has ever bought anything in Lord & Taylor. Lord & Taylor faces a huge risk. They can try to attract my daughter, which may be impossible, and risk losing my mother. Or, they can very consciously stay the course and realize they are on the backside of the life-cycle curve.
The above is a pragmatic look at life-cycle dynamics. But as several of my colleagues previously noted, many of the retailers failed under their own weight and incompetent and arrogant management.
Retailers have come and gone but some have evolved with the changing times and cleared the hurdles for a century or more: Kroger, A&P, Supervalu (started H. S. Bull 1870), Safeway (96 years), Wegmans is approaching the century mark–and there are others.
Now look at non-retail companies (supplier companies) and we find that many of them have come and gone. That’s one reason why I applaud P&G. They have kept ahead of the curve caused by the vicissitudes in the ever-revising marketplace and marketing paradigms.
I was fortunate to be present at Mr. Treacy’s talks, and for the most part I found it valuable and insightful. His remarks reinforced a fundamental truth I have observed about startups of all types–the people who found these businesses are rarely the people who lead them in their mature phases.
That shift–from entrepreneur-led to manager-led–may be the single largest factor in the retail concept life cycle. Entrepreneurs take risks to succeed, while professional managers avoid risks to as not to fail.
Growth addiction is another factor of consequence. Businesses are valued based on present profits and growth trends. The larger the base, the more difficult it is to sustain a rate of growth. Look at Walmart, which must add the equivalent of a 200-store chain each year just to maintain a 3% growth.
Eventually, a very large retailer outgrows its niche positioning and must cater to a broader population. Michael Porter described this as a descent into “the big middle” of the market: a large chain becomes all things to all people, but loses meaning to anybody.
So it’s little wonder that many retailers run out of steam as they expand. Their identities become diluted and their entrepreneurial spirit is subsumed by quarterly operating benchmarks. The exceptions–those retailers who have beaten the odds and thrived beyond the lifespan of the founders–generally have reinvented themselves and repositioned the brand.
Generalizations are just that! When Michael Treacy and others decide they have something to say about a specific business segment or even business in general they often rely on broad generalizations. Unfortunately, this type of analysis of business is often inaccurate. While Montgomery Ward went away because of inept management, the Fred Meyer acquisition, not a merger, with Kroger was the result of a larger company buying a strong regional company that fit nicely into their portfolio. And anyone who has been paying attention to the Mervyns situation knows the company’s recent problems came about as a result of their acquisition by an investment firm that doesn’t understand how to grow and manage a retail business.
As others have said here, there are plenty of retail companies who are alive and doing well today far longer than Mr. Treacy’s stated 30 to 50 years. While Mr. Treacy wrote an interesting and useful book back in the 90s, he obviously thinks one can apply generalizations to retailing. Retailing today is far too complex to rely on generalizations. Those who comment on RetailWire know this which can be seen in their insightful contributions to the discussions that take place here every day.
The greatest challenge for a long life for a retailer (or any company) is leadership. A retailer can go past 50 years but they must have a strong leadership plan with a vision. I think Publix will be around another 50 years due to their leadership and vision.
This quantitative view of company lifespan is fascinating; statistical regression is a given fact of any business. As for my qualitative interpretation, there are many factors which could influence such a decline in strength. One of the most pertinent is the ever changing nature of the retail market. As an example, say 20 years ago if a hypothetical startup found its success, it was able to do so because its mode of operation was a perfect fit for market conditions at that time. But as time goes by, that method of exploitation might lose its effectiveness. New strategies need to be adapted, and that second, third, or fourth adaptation might not prove to be as effective as their original plan.
The founder might have had a knack for past conditions, but no clue what to do with proceeding ones. The same could be said of the managers who took the torch upon the exiting of the founder. Their original strategy might not work in new markets and the company might not be able to adapt. Regardless of the commitment to top down or modular management, in one era one might work and in another the other. The ability of management to read the market, discover what modes of sale fit each era, combined with the ability to ride out rough transitional times, and luck–a bit of luck–are key if a company is to stay productive. Expecting to be on the top indefinitely is delusional and futile.
Michael Treacy forgot a factor even larger than any mentioned above regarding a company’s demise: the loss of the “founder”–either through the sale of the company or natural causes.
If you think mojo goes away without proper strategic planning, think about what would happen to Apple without Jobs, or Whole Foods without Mackey or the Limited without Wexner, or Starbucks without Schultz, on and on.
As a matter of fact, you can actually attribute a company’s average life cycle directly to the founder’s presence, which is why it’s 30 to 50 years.
There isn’t much difference between management hubris and failing to adjust to changing times. They seem one and the same to me.
As others have rightly pointed out, Mr. Treacy is not pointing out a “truth”…just an average.
Retailers have to adjust to several things: rapid growth, times of LACK of rapid growth, changes in the environment, changes in sources of supply, increased competition from unexpected places, changes in technology, and yes, changes in customer taste.
Those who do…survive. Those who don’t, don’t last long at all. Fifty years is a good enough number. Heck, as pointed out, some don’t even make it to 2 years.
The bottom line is straight forward enough. Retailers need to change with the times.
I always find it interesting (and a bit concerning–am I change resistant?) that my two most patronized retailers are America’s two oldest: Brooks Brothers and Lord & Taylor. Have they changed with the times, or evolved with their customer? I would argue that they have evolved. Both are essentially in the same demographic/psychographic customer group that they started in but have steadily, slowly changed with their customers since 1819 and 1829 (or thereabouts).
Contrasting that with Bonwit’s, Garfinkle’s, and so many others that instead, abandoned their customers and tried to go after different ones, and spiraled into ruin.
As W.E.Deming used to say, “Learning is not compulsory, but neither is survival.” I don’t think a company is doomed to fail in 30-50 years, but management that is geared to maintain the status quo and that cannot or does not respond to marketplace changes will be guaranteed to kill a company. There is no reason that companies have to fail.
We always say “everything eventually dies.” You, me and every business.
The author is right on in his assessment. The landscape is littered with once mighty retailers. It would be arrogant and myopic to even think there’s a retailer out there now that will still exist in 50 years.
The winner in all this? The consumer. After all, consumers vote with their wallets.
Here are some of the factors I see as to why retailers fail after being successful. After the entrepreneur steps down from day to day operations, innovation and change stops. Usually the entrepreneur has a sense of the consumer and the caretakers do not. Too many retailers have a financial, not merchant chief executive.
Another problem is, as retailers get large, there is disconnect with the consumer. Headquarters gets political and no one wants to rock the boat. Some large retailers believe they know what is best for the consumer. They even view them with contempt as a necessary evil. The idea that “there is no reason to change as we were successful and will be again,” prevails.
Let’s see. Kroger is 125. A&P is 150 next year; I remember because my mother took me there shopping a lot when I was a kid, and in 1959 their constant jingles in the aisles about their 100th anniversary drove me crazy. Haven’t been the same since. Price Chopper is 75. Safeway’s roots date back to 1912, although it wasn’t Safeway until 1925. Publix is 78. Wegmans is 92. Um, I could go on….
I would have to say that a retailer able to succeed over a period of 30-50 years is quite an accomplishment. For new retailers starting today, I would say the life span is more like 2-5 years.
Like most companies that have been around for over 30 years, the original owners have left. And with them the drive and passion that started the company in the first place. In many cases new management operate by committee under the influence of demanding shareholders. It’s no wonder these companies lose their ability to react quickly to changes and opportunities.
It seems to me that one of the biggest challenges to longevity for retailers is trying to please shareholders on a quarterly basis. As a retailer becomes large enough to go public, it gives up its freedom to make the long-term strategic decisions that made it successful in the first place. Then share price and shareholder reaction to quarterly profit becomes the most important factor in business decisions.
The customer, over time, becomes secondary to the shareholder and the business’ decline becomes inevitable. There are a few mavericks that are strong enough to buck that tide–Costco being one that comes to mind–but they are very rare. And even then, they’re only able to be the maverick as long as profits hold up.
Statistics being what they are, it is easy to come to a conclusion such as Mr. Treacy’s. And when you consider “averages” he’s right. But when you manage to averages, as he illustrates, that’s as far as you get.
The retailers cited above all failed strategically and strategy comes from management, sometimes with outside professional help. So the answer to the poll is both strategy and management hubris.
One sure way NOT to fail is to build and sustain a valuable customer base. This is a core strategy that is not practiced by the average retailer. While this is what gets some of us wound up, the proverbial highway of retail is littered with roadkill where management, in its arrogance and/or myopia, simply lost focus on customers.
Nordstrom presents a perfect antithetical case study. Over a century old, they lost focus on their core values a few years ago. This was clearly a function of management. Unlike those merchants above, however, the Nordstrom brothers were smart and not so arrogant that they could realize this and right the ship.
While their comps last month were negative, they were not as bad as their peers. So they are two lifetimes above average and I would predict that they have a few more lifetimes to go.
It doesn’t seem like Mr. Treacy is adding anything really new here. Yes, companies have life cycles and yes, those life cycles tend to vary from industry to industry. There are many macro issues that affect the survival of companies today that did not affect them (or affect them as much) 50 years ago. I suspect the life cycle of companies is shrinking, but that is a longitudinal study that won’t be finished until long after we finish our working careers.
Any business that doesn’t understand that (1) business cycles have gotten shorter and are continuing to decrease, (2) constant change is the norm, and (3) innovation is a requisite for success, is doomed to a short life cycle.
The unfortunate reality of the last few decades in retailing is a combination of age-old management hubris and the advent of public companies and the requirement to hit short term financial hurdles. The combination is deadly. Management hubris creates missed opportunities and decisions away from the customer. Short term financial focus further separates decision making from the customer. In both cases, the customer loses and eventually votes with their wallet to kill the retailer.
The answer isn’t easy but as long as these factors exist, we’ll always see the cycle of brilliant retail ideas launching, capturing the customers’ interest and creating significant success and growth. Eventually the natural desire for personal wealth growth pushes that retailer into public filings or a private equity grab. From there, the inevitable slide to oblivion begins. Let’s see what the current financial collapse does to this cycle. It should be interesting to watch.
I would agree with all that’s been said already about the reasons a retailer looses its footing and fails. Retailers that found success and grew because they were timely and innovative often become stale and cautious as time goes along.
What I would add is that as the retail industry continues to consolidate, leaving a single behemoth dominating many segments, their dominant position will likely give them the financial wherewithal to extend their lifespan. They won’t be invulnerable, but they will have greater margin for error, and it will take a longer and more significant period of market change and technological innovation before their positions will be challenged.
Long term survival at retail requires a passion for the business. If that passion wains, the business will ultimately suffer. The restaurant business is a short term study in success and failure.
An experienced, passionate individual with moderate intelligence can open a restaurant and be successful. The initial rate of success is pretty high. However, as profits begin to build, often to a point beyond the entrepreneur’s wildest dreams, the owner often allows his attention to drift…to boats, to cars, to vacation homes and occasionally to a hostess or a waitress. Whatever the distraction, the attention moves away from what made the business a success.
The entrepreneur becomes a “big shot” and places the “day to day” in the hands of staff. Staff sometimes doesn’t know what to do when things get tough and then hesitate to “call the boss.” Well they don’t and things go so bad that customers start talking and then it’s all over. Retail is just the same, except your product doesn’t have to be made for every customer, so the lousy service/value/product equation gets stretched over a longer time frame. It’s tough and there is no substitute for passion. No passion = no business, in the long run.
Hubris Management or arrogance and cronyism come to mind. The final nail in the coffin for Mervyns was their lack of inventory control (ridiculous overstocking on the floor) and there strategy was to hire mostly part-time sixteen year olds to avoid paying benefits.
Let’s see, Target and Walmart are about to hit 50. So, maybe the 50% annual turnover rate at Walmart and self-deportation of illegals with the poor economy will kill their business model. Target needs to stop building “Taj Mahal” type stores and showboating in New York with their cutesy “pop-up” stores. Retailers need to get back to basics and start treating their employees with respect and start paying them living wages so they actually care about their jobs.
Most retailers fail to last beyond the second generation of management. The first generation of management, whether family or professional management, has the passion and entrepreneurial spirit that defined the retailer’s “right to exist”–their compelling proposition. By the second generation, the money managers have usually taken over and success is defined by expansion via leverage combined with repeated austerity moves to keep expenses low. Eventually this cycle creates a rather plain offer that has little to do with product or service excellence. The customer starts becoming disinterested and is only lured by price.
Finally, either enough customers defect to the next cool retail option, or a recession takes away the easy credit that has allowed a mediocre enterprise to survive. Sad. There are examples of exceptions–but they are few and far between.
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Michael Treacy attributed some of the most valid reasons why retailers are disappearing after 30 years or so, however, it doesn’t have to happen. The business and marketing plans should be constantly re-evaluated to be sure that shifts in the market are not being missed and “mojo” is something that can be reinvigorated and refreshed with perpetual attention to solid public relations and meaningful changes.
My concern with today’s retail environment is that too many retail chains look alike and simply copy one another, and carry the same distribution in order to try to avoid risk and mistakes. That’s how the “mojo” evaporates in time.
Mr. Thayer provides us with a list of retailers who remain successful long after 50 years, which is nearly as long as the one in the article of those retailers who didn’t survive.
A retailer’s reason for being is never safe or certain. It is very likely true that as long as a retailer can deliver the “it” that made them successful, they will survive. However, maintaining the “it” alone is not enough to ensure success. As generations change, attitudes change, technology changes and lifestyles change. The “it” that was once so relative may no longer be valued. New retail concepts begin to fill the niche that is created by either a new generation of shoppers or to fill the needs that existing retailers don’t address, due to these changes in lifestyle, economics, technology and so on.
Retailers must remain relevant, and holding onto what made them successful initially may not be the answer to long term success. As always it is the leaders of the company who must challenge and lead the company to remain meaningful. This is the ultimate challenge to longevity, the quality and vision of the successive management teams and their ability to lead their companies into the future.
In Marketing 101, one of the first topics studied is product life cycle. It is true. It exists for almost everything, including retailers.
I don’t necessarily agree with Mr. Treacy’s list. I would exclude mergers and acquisitions. I would rather look leading retailers over the last 60-years and how the lists have changed. A&P, to Safeway to Kroger. Montgomery Ward, to Sears to Kmart to Walmart. Howard Johnson’s to McDonald’s. Department stores to specialty stores.
As Phil Rubin previously noted, “One sure way NOT to fail is to build and sustain a valuable customer base.” That is absolutely correct. A retailer represents something in a consumers mind. The retailer should not let that waiver. Continual changes in the BRAND devalue and confuse what the retailer represents to the consumer. There is one problem with this, the consumer ages and dies. “It IS your father’s Oldsmobile.”
My elderly mother frequents Lord & Taylor, as she has for the last 50 or more years. I doubt if my daughter has ever bought anything in Lord & Taylor. Lord & Taylor faces a huge risk. They can try to attract my daughter, which may be impossible, and risk losing my mother. Or, they can very consciously stay the course and realize they are on the backside of the life-cycle curve.
The above is a pragmatic look at life-cycle dynamics. But as several of my colleagues previously noted, many of the retailers failed under their own weight and incompetent and arrogant management.
Retailers have come and gone but some have evolved with the changing times and cleared the hurdles for a century or more: Kroger, A&P, Supervalu (started H. S. Bull 1870), Safeway (96 years), Wegmans is approaching the century mark–and there are others.
Now look at non-retail companies (supplier companies) and we find that many of them have come and gone. That’s one reason why I applaud P&G. They have kept ahead of the curve caused by the vicissitudes in the ever-revising marketplace and marketing paradigms.
I was fortunate to be present at Mr. Treacy’s talks, and for the most part I found it valuable and insightful. His remarks reinforced a fundamental truth I have observed about startups of all types–the people who found these businesses are rarely the people who lead them in their mature phases.
That shift–from entrepreneur-led to manager-led–may be the single largest factor in the retail concept life cycle. Entrepreneurs take risks to succeed, while professional managers avoid risks to as not to fail.
Growth addiction is another factor of consequence. Businesses are valued based on present profits and growth trends. The larger the base, the more difficult it is to sustain a rate of growth. Look at Walmart, which must add the equivalent of a 200-store chain each year just to maintain a 3% growth.
Eventually, a very large retailer outgrows its niche positioning and must cater to a broader population. Michael Porter described this as a descent into “the big middle” of the market: a large chain becomes all things to all people, but loses meaning to anybody.
So it’s little wonder that many retailers run out of steam as they expand. Their identities become diluted and their entrepreneurial spirit is subsumed by quarterly operating benchmarks. The exceptions–those retailers who have beaten the odds and thrived beyond the lifespan of the founders–generally have reinvented themselves and repositioned the brand.
Generalizations are just that! When Michael Treacy and others decide they have something to say about a specific business segment or even business in general they often rely on broad generalizations. Unfortunately, this type of analysis of business is often inaccurate. While Montgomery Ward went away because of inept management, the Fred Meyer acquisition, not a merger, with Kroger was the result of a larger company buying a strong regional company that fit nicely into their portfolio. And anyone who has been paying attention to the Mervyns situation knows the company’s recent problems came about as a result of their acquisition by an investment firm that doesn’t understand how to grow and manage a retail business.
As others have said here, there are plenty of retail companies who are alive and doing well today far longer than Mr. Treacy’s stated 30 to 50 years. While Mr. Treacy wrote an interesting and useful book back in the 90s, he obviously thinks one can apply generalizations to retailing. Retailing today is far too complex to rely on generalizations. Those who comment on RetailWire know this which can be seen in their insightful contributions to the discussions that take place here every day.
The greatest challenge for a long life for a retailer (or any company) is leadership. A retailer can go past 50 years but they must have a strong leadership plan with a vision. I think Publix will be around another 50 years due to their leadership and vision.
This quantitative view of company lifespan is fascinating; statistical regression is a given fact of any business. As for my qualitative interpretation, there are many factors which could influence such a decline in strength. One of the most pertinent is the ever changing nature of the retail market. As an example, say 20 years ago if a hypothetical startup found its success, it was able to do so because its mode of operation was a perfect fit for market conditions at that time. But as time goes by, that method of exploitation might lose its effectiveness. New strategies need to be adapted, and that second, third, or fourth adaptation might not prove to be as effective as their original plan.
The founder might have had a knack for past conditions, but no clue what to do with proceeding ones. The same could be said of the managers who took the torch upon the exiting of the founder. Their original strategy might not work in new markets and the company might not be able to adapt. Regardless of the commitment to top down or modular management, in one era one might work and in another the other. The ability of management to read the market, discover what modes of sale fit each era, combined with the ability to ride out rough transitional times, and luck–a bit of luck–are key if a company is to stay productive. Expecting to be on the top indefinitely is delusional and futile.
Michael Treacy forgot a factor even larger than any mentioned above regarding a company’s demise: the loss of the “founder”–either through the sale of the company or natural causes.
If you think mojo goes away without proper strategic planning, think about what would happen to Apple without Jobs, or Whole Foods without Mackey or the Limited without Wexner, or Starbucks without Schultz, on and on.
As a matter of fact, you can actually attribute a company’s average life cycle directly to the founder’s presence, which is why it’s 30 to 50 years.
There isn’t much difference between management hubris and failing to adjust to changing times. They seem one and the same to me.
As others have rightly pointed out, Mr. Treacy is not pointing out a “truth”…just an average.
Retailers have to adjust to several things: rapid growth, times of LACK of rapid growth, changes in the environment, changes in sources of supply, increased competition from unexpected places, changes in technology, and yes, changes in customer taste.
Those who do…survive. Those who don’t, don’t last long at all. Fifty years is a good enough number. Heck, as pointed out, some don’t even make it to 2 years.
The bottom line is straight forward enough. Retailers need to change with the times.
I always find it interesting (and a bit concerning–am I change resistant?) that my two most patronized retailers are America’s two oldest: Brooks Brothers and Lord & Taylor. Have they changed with the times, or evolved with their customer? I would argue that they have evolved. Both are essentially in the same demographic/psychographic customer group that they started in but have steadily, slowly changed with their customers since 1819 and 1829 (or thereabouts).
Contrasting that with Bonwit’s, Garfinkle’s, and so many others that instead, abandoned their customers and tried to go after different ones, and spiraled into ruin.
As W.E.Deming used to say, “Learning is not compulsory, but neither is survival.” I don’t think a company is doomed to fail in 30-50 years, but management that is geared to maintain the status quo and that cannot or does not respond to marketplace changes will be guaranteed to kill a company. There is no reason that companies have to fail.
We always say “everything eventually dies.” You, me and every business.
The author is right on in his assessment. The landscape is littered with once mighty retailers. It would be arrogant and myopic to even think there’s a retailer out there now that will still exist in 50 years.
The winner in all this? The consumer. After all, consumers vote with their wallets.
Here are some of the factors I see as to why retailers fail after being successful. After the entrepreneur steps down from day to day operations, innovation and change stops. Usually the entrepreneur has a sense of the consumer and the caretakers do not. Too many retailers have a financial, not merchant chief executive.
Another problem is, as retailers get large, there is disconnect with the consumer. Headquarters gets political and no one wants to rock the boat. Some large retailers believe they know what is best for the consumer. They even view them with contempt as a necessary evil. The idea that “there is no reason to change as we were successful and will be again,” prevails.
Let’s see. Kroger is 125. A&P is 150 next year; I remember because my mother took me there shopping a lot when I was a kid, and in 1959 their constant jingles in the aisles about their 100th anniversary drove me crazy. Haven’t been the same since. Price Chopper is 75. Safeway’s roots date back to 1912, although it wasn’t Safeway until 1925. Publix is 78. Wegmans is 92. Um, I could go on….
I would have to say that a retailer able to succeed over a period of 30-50 years is quite an accomplishment. For new retailers starting today, I would say the life span is more like 2-5 years.
Like most companies that have been around for over 30 years, the original owners have left. And with them the drive and passion that started the company in the first place. In many cases new management operate by committee under the influence of demanding shareholders. It’s no wonder these companies lose their ability to react quickly to changes and opportunities.
It seems to me that one of the biggest challenges to longevity for retailers is trying to please shareholders on a quarterly basis. As a retailer becomes large enough to go public, it gives up its freedom to make the long-term strategic decisions that made it successful in the first place. Then share price and shareholder reaction to quarterly profit becomes the most important factor in business decisions.
The customer, over time, becomes secondary to the shareholder and the business’ decline becomes inevitable. There are a few mavericks that are strong enough to buck that tide–Costco being one that comes to mind–but they are very rare. And even then, they’re only able to be the maverick as long as profits hold up.
Statistics being what they are, it is easy to come to a conclusion such as Mr. Treacy’s. And when you consider “averages” he’s right. But when you manage to averages, as he illustrates, that’s as far as you get.
The retailers cited above all failed strategically and strategy comes from management, sometimes with outside professional help. So the answer to the poll is both strategy and management hubris.
One sure way NOT to fail is to build and sustain a valuable customer base. This is a core strategy that is not practiced by the average retailer. While this is what gets some of us wound up, the proverbial highway of retail is littered with roadkill where management, in its arrogance and/or myopia, simply lost focus on customers.
Nordstrom presents a perfect antithetical case study. Over a century old, they lost focus on their core values a few years ago. This was clearly a function of management. Unlike those merchants above, however, the Nordstrom brothers were smart and not so arrogant that they could realize this and right the ship.
While their comps last month were negative, they were not as bad as their peers. So they are two lifetimes above average and I would predict that they have a few more lifetimes to go.
It doesn’t seem like Mr. Treacy is adding anything really new here. Yes, companies have life cycles and yes, those life cycles tend to vary from industry to industry. There are many macro issues that affect the survival of companies today that did not affect them (or affect them as much) 50 years ago. I suspect the life cycle of companies is shrinking, but that is a longitudinal study that won’t be finished until long after we finish our working careers.
Any business that doesn’t understand that (1) business cycles have gotten shorter and are continuing to decrease, (2) constant change is the norm, and (3) innovation is a requisite for success, is doomed to a short life cycle.
The unfortunate reality of the last few decades in retailing is a combination of age-old management hubris and the advent of public companies and the requirement to hit short term financial hurdles. The combination is deadly. Management hubris creates missed opportunities and decisions away from the customer. Short term financial focus further separates decision making from the customer. In both cases, the customer loses and eventually votes with their wallet to kill the retailer.
The answer isn’t easy but as long as these factors exist, we’ll always see the cycle of brilliant retail ideas launching, capturing the customers’ interest and creating significant success and growth. Eventually the natural desire for personal wealth growth pushes that retailer into public filings or a private equity grab. From there, the inevitable slide to oblivion begins. Let’s see what the current financial collapse does to this cycle. It should be interesting to watch.
I would agree with all that’s been said already about the reasons a retailer looses its footing and fails. Retailers that found success and grew because they were timely and innovative often become stale and cautious as time goes along.
What I would add is that as the retail industry continues to consolidate, leaving a single behemoth dominating many segments, their dominant position will likely give them the financial wherewithal to extend their lifespan. They won’t be invulnerable, but they will have greater margin for error, and it will take a longer and more significant period of market change and technological innovation before their positions will be challenged.
Long term survival at retail requires a passion for the business. If that passion wains, the business will ultimately suffer. The restaurant business is a short term study in success and failure.
An experienced, passionate individual with moderate intelligence can open a restaurant and be successful. The initial rate of success is pretty high. However, as profits begin to build, often to a point beyond the entrepreneur’s wildest dreams, the owner often allows his attention to drift…to boats, to cars, to vacation homes and occasionally to a hostess or a waitress. Whatever the distraction, the attention moves away from what made the business a success.
The entrepreneur becomes a “big shot” and places the “day to day” in the hands of staff. Staff sometimes doesn’t know what to do when things get tough and then hesitate to “call the boss.” Well they don’t and things go so bad that customers start talking and then it’s all over. Retail is just the same, except your product doesn’t have to be made for every customer, so the lousy service/value/product equation gets stretched over a longer time frame. It’s tough and there is no substitute for passion. No passion = no business, in the long run.
Hubris Management or arrogance and cronyism come to mind. The final nail in the coffin for Mervyns was their lack of inventory control (ridiculous overstocking on the floor) and there strategy was to hire mostly part-time sixteen year olds to avoid paying benefits.
Let’s see, Target and Walmart are about to hit 50. So, maybe the 50% annual turnover rate at Walmart and self-deportation of illegals with the poor economy will kill their business model. Target needs to stop building “Taj Mahal” type stores and showboating in New York with their cutesy “pop-up” stores. Retailers need to get back to basics and start treating their employees with respect and start paying them living wages so they actually care about their jobs.
Most retailers fail to last beyond the second generation of management. The first generation of management, whether family or professional management, has the passion and entrepreneurial spirit that defined the retailer’s “right to exist”–their compelling proposition. By the second generation, the money managers have usually taken over and success is defined by expansion via leverage combined with repeated austerity moves to keep expenses low. Eventually this cycle creates a rather plain offer that has little to do with product or service excellence. The customer starts becoming disinterested and is only lured by price.
Finally, either enough customers defect to the next cool retail option, or a recession takes away the easy credit that has allowed a mediocre enterprise to survive. Sad. There are examples of exceptions–but they are few and far between.