4 lessons learned from retail’s failure

May 5, 2016

Retail’s failure is everywhere. What can we learn?

The news is filled with one retail shop after another in some form of failure. Headlines like,”Bebe posts $30m loss, looks to liquidate assets” or “Why Sports Authority is likely to close all 463 Stores” are all over the news. Aeropostale just announced they’re filing for bankruptcy protection. Coach Inc. is going through reorganization as well as Macy’s, JC Penney’s and Sears. After losing money for 3 consecutive years, Wet Seal decided to close 338 stores. As a result of all of this failure, thousands of workers have or will lose their jobs and the whole industry suffers. What can the resale industry take away from retail’s failure? There are 4 lessons learned.

1.) Your inventory has to be up-to-date

Failure of Wet SealFortune reports that one of the reasons for Wet Seal’s loss of profits was its inability to stay up with the current teen trends. The article cited H&M, Forever 21 and Zara as doing a better job “matching current fast-fashion trends.” In a slump overall, teens are more interested in the latest gadget rather than the latest pair of jeans. Mall traffic has decreased and the rise in popularity of teen athleisure brands also takes its toll. Obviously, the teen market is more volatile than others. Nonetheless, it proves that staying current with the fashion trends of your target market is key.

Take Coach for example. Coach joined the logo craze a couple of decades ago. It’s now found their market is no longer interested in logo-saturated merchandise. Even Victoria’s Secret is feeling the heat from the athleisure trend. Business is falling because consumers are looking for comfort and fit rather than slinky. Plus, Jockey and Lululemon are making their brands a little more feminine with soft, pretty touches.

Know your market and the trends. Know what your shoppers are looking for and go after it.

2.) Establishing your “brand” is critical

ABC news revealed that Wet Seal had “struggled with an identity crisis for years.” According to Craig Johnson, president of Customer Growth Partners, a retail consultancy firm, “It couldn’t decide what it wanted to be when it grew up.”

failure of CoachSince 2013, Coach Inc. was seeing a consistent downturn in sales. They recognized their failure came by offering bags in factory outlet stores or at deep discounts. They had become the “luxury” bag for the masses, but the masses weren’t buying. As a result, Coach underwent an entire reorganization. They have gotten away from the logo-covered look; reduced the number of flash-sale offerings and returned to the brand they were known for since 1941. In fact, they’ve introduced a whole new line of clothing, quality leather hand bags and shoes under the name Coach 1941 to emphasize the positive changes.

Macy’s is reorganizing in the opposite direction. They are introducing Macy’s Backstage, an off-price, deeply discounted retail department. Sears has a major branding crisis on their hands.  Earlier this year, Fortune magazine reported that Sear’s apparel now ranks below Goodwill in popularity among shoppers.

Do you have a solid mission statement for your business? Does your business plan include not only a vision for today, but a goal for the future? Are you clearly conveying your identity through signage, merchandising, your logo and marketing?

3.) Location is truly key

Although no one could clearly predict the slowing mall traffic, Wet Seal maintains this was a defining factor in their downfall. Unable to renegotiate “meaningful” lease rates from their landlords led to the final decision to close their doors. Bebe also sites declining mall traffic as part of their failure.

Macy’s chose to close 40 of its smaller locations in early 2016 deciding to add to the larger existing locations instead and Sears has also begun closing its weakest locations.

You’ve heard it before…your location is key to your success. Knowing who your market is and where they are comfortable shopping is crucial.

4.) Knowing when to call it quits

As a small business owner, you know the blood, sweat and tears you’ve poured into your store, not to mention the time and money. For Wet Seal, it was more about pouring money in. They had piled up more than $150 million in losses and received a default notice on $28 million in loans from a creditor. Sports Authority disclosed that they had missed a $20 million debt payment. It goes on and on.

Continually sinking money and additional time into your business is a key indicator it may be time to call it quits. In an earlier post CFO Mark Gandy addressed these issues in his article, How to know it’s time to close up shop. He also offers some great tips on ways you might be able to “turn the ship around.” Failure doesn’t have to be a part of your future, but careful planning does.



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