We are just over halfway through the year that no one will soon forget. Twenty-five retailers have filed for bankruptcy so far, the latest announcement coming from Lord & Taylor. In 2019, a total of 17 retailers took the plunge.
Website CBInsights.com has a running list of 113 bankruptcies, going back to January 2015. The big news that year was the demise of Radio Shack, at least until A&P announced its second trip to B-Court. 2015 was the year of the “retailpocalypse,” the year the term was coined, but there were only a dozen that year.
So far, 2020 has set a blistering pace with more at the halfway point for all of 2017, 2018, or 2019. With each failure the experts line up to present their various case studies for the cause. The number one cause seems to be online shopping, specifically Amazon. This year, that’s closely followed by or coupled with Covid-19.
A lack of sales tends to be the culprit in each case. But that’s taking a simplistic view. Lack of sales is a symptom of a larger, deeper problem. Sales declines happen for a reason; customers may stop spending at one store, but they rarely stop spending altogether. This year we did see a reduction in spending, but that’s not the reason all those stores are holding liquidation events.
The U.S. is grossly overstored. That’s not news. It’s not just that there are too many stores and retail banners. The larger problem is that there is little to no differentiation between many of them. This is true for clothing stores (which make of the majority of bankruptcies) as well supermarkets.
The paradox of choice only applies when the options are so similar as to be interchangeable. When that happens, retailers tend to go down the price rabbit hole, which further commoditizes their offer, and the downward spiral continues.
When I was working in the supermarket industry, we used to joke that if you dropped a blindfolded shopper into the middle of the store and removed the blindfold, she would have no idea what store she was in. Worse, she probably wouldn’t care. Supermarkets have gone all in on price reduction (chasing Walmart) and reducing labor costs (ditto).
Technology has received a growing share of investment in retail, but little of it is designed to improve the shopping experience. Most is designed to cut labor costs or improve the supply chain. The expectation is that shoppers will flock to lower prices, but they’ve already got Walmart., so what’s the point?
A few stores have kept the focus on the shopper and the experience: H-E-B, Wegmans, Tractor Supply, Best Buy, and a few others. In each case the shopper has remained at the center, and meeting the needs of that shopper has been the primary goal. Not cost reduction, not supply chain, not labor savings.
To be clear, controlling costs and ensuring the supply chain works are important. But too often they take the place of the needs of the customer; when that happens the wheels begin to wobble. Left unchecked, the wheels come off, sales drop, and… you know the rest.
One of the great paradoxical mysteries of retail bankruptcy is the practice of rewarding the management that put them there. It’s common for businesses to give senior management a fat bonus on Friday, then file Chapter 11 on Monday. Or declare bankruptcy, then offer “stay on” bonus incentives to keep those execs on board. That’s like having your doctor misdiagnose your angina as heartburn, then paying him extra to put in your stent after the heart attack.
There’s a great scene in the movie Bull Durham. The coach yells at his underperforming team that baseball is a simple game. “You hit the ball, you throw the ball, you catch the ball!” So it is with retail. You provide products that consumers want at a price they are willing to pay. How you do that is where the complexity often creeps in.
Case in point: one of the biggest complaints from shoppers is waiting in line to check out. This is true for any store, but we hear it most often in the supermarket industry. Solving that problem should be simple: have more checkout personnel available. But that takes labor, and supermarkets hate paying for labor.
The first step was to shift the checkout process to the shopper. Self-checkout became the standard. Theft went up, and checkout time actually increased, but shoppers liked it because a) they felt in control, and b) they didn’t have to wait in line. One overseer could manage ten checkouts.
Then Amazon developed a gee whiz solution that avoids checkout altogether. Even though the costs to install and maintain that system exceed by far the cost of adding some additional checkers, retailers are all frothing at the mouth to get that system or one like it, damn the expense.
If the customer experience were truly at the center, adding a couple of people would be an easy – and relatively cheap – decision. But customers are a necessary evil for most retailers; they have unreasonable expectations, they are fickle, and we don’t trust them. So…technology.
Here’s a thought experiment for you: let’s pretend it’s 2030 and the Amazon Go checkout system is the standard for retail. Every store now has it, and shoppers expect it. How do you differentiate? Low prices? Better in-stock conditions? Keep in mind that neither of those improves the shopping experience.
Maybe instead of mortgaging your business on installing the latest tech, you add a couple of people who are passionate about your business in each store. Let them talk to customers – not sell – talk. Bring them up front to help customers check out when it gets busy.
In 2030, when you’re the only one without a glitzy gee whiz checkout, and the only one with knowledgeable employees who know your customers, want to guess who won’t be thinking about bankruptcy?