Retail Feels the Pain
By David Dorf on Oct 22, 2008
For a few retailers, there will be no Christmas at all. This year several have announced closings and associated "going out of business sales." Shoe Pavillion, a 64-store retailer that has been in business for 29 years, is closing all its stores. Mervyn's Department Stores , which had 169 locations, has filed for Chapter 11 bankruptcy and is liquidating its merchandise. Linens 'N Things is busy liquidating its remaining 371 stores. And Circuit City announced it is considering the closure of 150 of its stores to avoid bankruptcy.
When the economy is booming, there's room for both good and bad retailers. But when consumer spending slows, only the best retailers are left standing. Some retailers are a victim of trends or the changing tastes of consumers. Others entered into ill-advised leases at the real estate market's peak. Still others just can't compete in saturated markets, so its a race to see who can last longest.
The retailers I've seen thrive in up and down economies have a few things in common:
1. They are constantly testing different ideas, like alternate store formats, new advertising campaigns, and complimentary products. Risk-taking is rewarded, regardless of the outcome. Good businesses know that their will be some failures along the path to success.
2. They are always reducing costs, especially in IT. But they know that sometimes in order to reduce long-term costs, they must invest in modern software and infrastructure. The CIOs that can't find the time to think strategically are destined to a career of tactical fixes. Firefighting should be the exception.
3. And above all, the best retailers know their customers. Information is the cornerstone of any business. The retailers that are able to collect and analyze customer trends are able to make faster, more accurate merchandising decisions. The right mix of art and science will maximize profits.
Retail is a tough business.