7 Reasons Your Retail Business is Failing
It has never been easier to start a retail business. You can set up a Shopify account and with the click of a button you are ready to start selling. The ease of business formation has only made a crowded marketplace even more crowded, with thousands of retailers closing their doors each year unable to stay ahead of the competition. The person who coined the term survival of the fittest must have had retailers in mind.
But amidst all of the destruction in the retail sector there are retailers that are thriving. From Walmart to Best Buy to lululemon there are companies that have figured out how to succeed even during challenging times. If you are struggling to grow your retail business consider these seven mistakes that hold many retailers back.
1. Your prices are too high. One of the underlying trends casting the fate of many retailers is simple economics. As the Payscale Index writes: “since 2006, wages have risen 17.4% overall in the United States. But when you factor in inflation, ‘real wages’ have actually fallen 8.5%. In other words, the income for a typical worker today buys them less than it did in 2006.” This disparity means that for many it’s hard to find enough money to put food on the table.
If consumers were already struggling before COVID-19 hit the pandemic only served to make things worse. Pew Research Center found that: “one-in-four adults have had trouble paying their bills since the coronavirus outbreak started, a third have dipped into savings or retirement accounts to make ends meet, and about one-in-six have borrowed money from friends or family or gotten food from a food bank.”
If you haven’t done an audit of your prices maybe you should. They might be just out of the reach of the millions of consumers who are struggling to make ends meet. Retailers stuck in the middle of the pricing spectrum like Sears or Macy’s are not just in bad shape because of less than desirable assortments. Their price positioning takes a lot of the blame.
If you can get “cheap chic” clothing from Target then why wouldn’t you? Many low priced retailers including Dollar General, Walmart, Costco and Target are thriving during a period when many retailers are struggling. As Todd Vasos, Dollar General’s CEO said during a first quarter earnings call last year: “we feel that we're very well positioned. The sweet spot, I would tell you, we do very good in good times and we do fabulous in bad times.” The pain consumers are feeling is real.
2. You are not taking diversity and inclusion seriously. By 2045 today’s minority populations in the United States will be the majority. This trend has already started to materialize. Non-White and Hispanic Americans are now the majority among those under the age of 16. Despite this reality many companies are still resisting catering to diverse needs, to their detriment. An example of this is Victoria’s Secret. Victoria’s Secret was one of the most popular lingerie brands for decades. But over time new competitors like Aerie and Savage x Fenty entered the market with a more inclusive offering. Despite growing competitive threats Victoria’s Secret dug its heels in and continued to focus on a narrow segment of the lingerie market.
As recent as three years ago, in 2018, when discussing criticism facing Victoria’s Secret’s fashion shows Ed Razek, Victoria’s Secret’s chief marketing officer at the time said this: “shouldn’t you have transsexuals in the show? No. No, I don’t think we should. Well, why not? Because the show is a fantasy. It’s a 42-minute entertainment special. That’s what it is.”
While Victoria’s Secret focused on its storied history it gave other companies the perfect opportunity to capture lucrative white space in the lingerie market. One of those companies is Savage X Fenty. When Savage X Fenty launched in 2018 it was heralded as ground breaking because it was. The brand features lingerie in an inclusive size range from 30A to 44DDD for bras and XS to 3X in undies. The size range is not lip service, the brand’s fashion shows are a tribute to diversity featuring plus size, older and pregnant models as well as models with disabilities. These fashion shows as well as Savage X Fenty’s merchandise are the antithesis of everything Victoria’s Secret has always stood for.
“When I imagine something, I imagine everyone I know and love being a part of it. I want to make stuff I can see on the people I know, and they come in all different shapes, sizes, races, and religions,” says Rihanna speaking about her Savage X Fenty brand. “I didn’t think it would be such a talking point after the fact; the only thing I could think about was including everyone.”
“Ideals are changing, and people want diversity and representation, ethnically and racially, but also in terms of shape and body type. For retailers to not adapt or evolve can be a fatal flaw,” says Kalinda Ukanwa, a marketing professor at the University of Southern California Marshall School of Business.
When looking at the opportunity that exists by targeting communities of colour, the opportunity is clear. Buying power within the Hispanic and black communities is expected to reach $1.9 trillion and $1.5 trillion respectively by 2023.
If your business is struggling to grow, are you truly focused on the largest addressable market? Are your marketing messages and collateral representative of the communities we live in? Does your organization have the right talent to properly serve a diverse world? Make no mistake there are more Fenty like brands than you realize which are going to disrupt industries and steal market share sooner than you think.
3. You are downplaying emerging trends. The first Gap store opened in San Francisco California a little over five decades ago in 1969. By the time the 80s arrived Gap was a household name and a fashion icon. Consumers couldn’t get enough of Gap’s denim, t-shirts and of course signature khakis. This style of dressing continued to be popular with consumers throughout the 1990s. But over time clothing tastes slowly started to change with the arrival of fast fashion retailers like Zara and H&M. Suddenly you didn’t have to wear your boring old khakis all the time, there was more choice and it looked better than what previously existed. Both of these retailers are now bigger than Gap.
Then there is the evolution of casual apparel. At one time casual meant khakis or jeans now it means lululemon leggings. lululemon has been in business since 1998 so while athleisure is taking off in a big way now the trend towards a different kind of casual clothing has been underway for some time. Gap similar to Nike and many other retailers are now in the athleisure category but first mover or at least early mover advantages matters. Of all the types of clothing athleisure seems like one that Gap with its scale and could have become a bigger player in.
While Gap used to set the trends it now follows them. How does this happen? It’s not a problem unique to Gap every retailer that has had a fall from grace has followed a similar pattern. There is always a point in the life cycle of a trend when outside of the early adopters no one believes it is going to take off. If you had heard of lululemon in its early days you probably wouldn’t have thought it would become one of the hottest clothing brands in the world.
It pays to take new trends seriously as small shifts in a market can lead to big changes over time. If a company can get into a market segment after all the hype like Gap in athleisure then it could have gotten in and tested concepts much earlier.
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4. You are not investing enough in your business. Success in retail is founded on continual and sustained investment back into the business. Stores are capital intensive and so is managing and growing an eCommerce business. Sears is an example of what happens when a retailer stops investing in itself.
In 2017 Sears spent approximately 91 cents per square foot to upgrade its stores and eCommerce site. At the same time JCPenney spent $4.13 per square foot, Kohl’s spent $8.12, and Best Buy spent $15.36 to make upgrades. As Sears’ stores fell further into disrepair they couldn’t generate enough to finance their own store upgrades leading to a negative investment cycle which generates lower and lower sales and less money to invest over time.
Edward Lampert, Sears’ former Chairman and CEO is credited with much of this lack of investment. In a 2007 letter to investors Lampert wrote: "unless we believe we will receive an adequate return on investment, we will not spend money on capital expenditures to build new stores or upgrade our existing base simply because our competitors do. If share repurchases or acquisitions appear to be more productive, then we will allocate capital to those options appropriately." It looks like he was true to his word. “He did nothing to maintain the stores — nothing to spiff them up and make them a nice place to go shopping,” says Robin Lewis CEO of the Robin Report and a retail industry analyst. This has come with dire consequences. Sears filed for bankruptcy in 2018 and is a shadow of its former self.
5. Your customer service is poor. When was the last time you tested the service offered by your company yourself? In an interview Hubert Joly, former CEO of Best Buy, was asked if he ever goes to Best Buy stores incognito. He said that as soon as he steps into a store he is recognized in a nano second. But he said this about experiencing Best Buy’s service from home: “on a Saturday, about five years ago, I had a networking issue at home. It was intermittent failures, as is often the case with networking issues. So I called 1-800-geeksquad, and that was very early on in my tenure, and the fact that — instead of recognizing me not as the CEO of the company, but as a customer — based on some number, like my phone number, or my account number, they had to ask for my information. Then after taking all of my information, including my credit card, they said, "somebody will call you back."
“I said, ‘Really? What are you talking about?’" “They didn't have the tool to know how long the wait time was to get a specialist for my issue. These were well-intentioned people, but we ended up giving them the tool. So a lot of what we've had to do is give people the tool. It's what Churchill wrote to Roosevelt in 1941. "Give us the tools, and we will finish the job."
As that experience shows your customer service may not be as great as you would like. Yet poor customer service is one of the top reasons consumers choose one business over another. Sometimes it’s as simple as not greeting a customer with a smile as they walk into a store that gives them less than a warm and fuzzy feeling.
6. You have stopped innovating. When Sears came on the scene in 1893 it was the retailer others wanted to emulate. Richard Sears was a visionary. He foresaw that America’s growing railway infrastructure could be used as a way to send goods to consumers in rural communities that lived far away from stores. That insight was the impetus for Sears’ at one time, immensely popular, catalog. Consumers were finally given a way to access merchandise at much lower prices than what was available from nearby merchants. It was a runaway success.
His next wave of brilliant insight? Retail stores. Sears correctly calculated that with the introduction of cars rural consumers that were once dependent on the Sears catalogue would have more access to other retailers. Sears took this threat seriously and started opening stores in the 1920s and by 1931 sales from Sears’ stores outstripped catalogue sales.
Don Katz, author of the book “The Big Store”, which provides an insider’s look at Sears says that Sears reinvented the future not once but twice when it opened up brick and mortar stores. "[Sears] decided that the automobile was the key to what was going to happen to commerce in America," says Katz. "He began to buy the crossroads outside of cities and towns all over the country." Those crossroads eventually became the suburbs. When people arrived in the burbs Sears was ready for them. Sears was: "completely innovative. They were inventing consistently," says Katz.
Sears did not stop innovating there. In 1985 Sears launched the Discover credit card the first of its kind to offer cash rewards based on the amount of purchases a cardholder makes. In only four years 20 million people had a Discover card. With all of this innovation Sears sounds less like a sleepy retailer and more like the Amazon of its time. But like many companies that fall to the perils of time, at some point Sears stopped innovating. It stopped doing the very thing that made it successful in the first place.
Why do companies stop innovating? It is usually because the drive and motivation that is necessary to create something out of nothing fades over time as the glow and trappings of success set in. Why experiment with something new if it might fail, bring reputational risk or forfeit current profits? Self-preservation is often the biggest enemy of success. Life is about growth and progress and as history shows it is unkind to those that try hang on for too long to what made them successful in the past.
7. You are investing too much in marketing that’s not working. Marketing is an enabler not a business strategy. The best brands are built on a solid foundation of great products and services and then marketing is used to amplify what already exists. lululemon exemplifies this best. When Chip Wilson founded the company just a little over twenty years ago he focused on creating athletic clothing that is engineered for maximum performance. lululemon’s apparel wicks away sweat, dries quickly, reduces bacteria causing odors and feel greats. lululemon has done all of this without sacrificing style.
lululemon had very little money to spend on marketing in its early years so instead Wilson’s goal was to drive brand awareness via word of mouth with customers spreading the word about the quality of lululemon products. He also gave free lululemon products to local yoga instructors who then taught lululemon classes to yoga enthusiasts for free. Although Wilson came up with the idea more 20 years ago it bares clear resemblance to what we know today as an influencer strategy. Not having money to spend on marketing became a blessing in disguise as Wilson was forced to come up with novel ways for drumming up interest in his product.
Many direct-to-consumer retailers see digital marketing as their path to growth. In the early days of direct-to-consumer businesses there was less competition for digital ads making them more economical. But overtime the marketplace has become crowded making it harder to standout, driving costs upwards.
Speaking about digital marketing, Nick Brown, Managing Partner of Imaginary Ventures said: “it was maybe dangerous 10 years ago but it’s definitely dangerous today to invest in a business where the only real driver of growth is performance marketing.” “The era of funding new businesses where the only opportunity for growth is to plow money in Facebook and Google is over.”
If you plow enough money into marketing eventually people take notice. But that doesn’t mean that you have the products and finesse required to create a loyal and enduring customer base.