Innovation vs 81 Bankruptcies

Mall Rats

Over dinner last night, my wife shared with my 10 year old a story that was cute – but seems really awkward in the lens of today.

My wife said that as a kid, she would get dropped off at the mall with her friends and spend the Saturday shopping and hanging out at the food court. Then, when it was time to go home, she’d find a payphone to call mom to pick her up.

My daughter had not taken a bite. She sat there staring at my wife as if she had a second head. What a forign concept. “Wow, mom. I don’t know anyone that does that… and what is a payphone?”

Apocalypse Now

It’s known as the Retail Apocalypse, and while that name sounds abit over the top at first, the gruesome carnage and mass destruction of companies can almost not be overstated. Almost. Perhaps even more shocking – is that we don’t know when it will end.

The simple fact is that people do not go shopping like they did back in the day, and the data proves this. Since 2015, 81 Retail chains have filed for bankruptcy as detailed in a recent report from CB Insights (one of my favorite reads) In 2017 alone, 7000 retail locations in the US closed due to bankruptcy.

Remember The Titans

These are not insignificant companies. These are iconic brands that many of us grew up with.

According to the Wall Street Journal, the largest was shoe retailer Payless, who in February of this year announced chapter 11 bankrupcy followed by the news that they were closing and liquidating all 2100 retail stores.
Payless was not the only shoe retailer swept up in the flood – in fact Shoes as a category were hit especially hard. Rockport, The Walking Company, Charlotte Olympia, Aerosols and Tamara Mellon all filed for bankruptcy in the last half of this decade.

More concerning was the end of iconic brands such as Toys “R” Us, the third largest bankruptcy in US history, Radio Shack and Sears.

The swath of destruction was also wide, including bridal dresses, perfume, Jewelry, lingerie, mattresses, vitamins, luxury goods like Brookstone, Barneys of NY & Z gallery.

Back to the Future

So how did we get here – what is causing this annihilation?

I know what you are thinking – but, don’t blame Amazon… entirely. Yes, they are still the juggernaut that crushes whole vertices… so they are definitely partially responsible. But it turns out these companies had several other problems that they commonly shared.

The CB Insight report outlines the 3 key commonalities of the bankruptcies:

Decline of physical retail – With the shift to e-commerce, fewer and fewer customers are shopping at big-box physical retailers and malls. Additionally, many of these physical retailers have lost the cache they once had as new direct-to-consumer brands with a hyper-focus on specific products have taken off.

Digital laggards – Many big-box retailers either failed or were too late to establish an online presence. With the rise of Amazon and digitally native direct-to-consumer brands, retailers that don’t adapt quickly enough inevitably fail to compete.

Mounting debt – Crippling debt, fueled by post-financial crisis leveraged buyouts by private equity firms, has forced many retailers to declare bankruptcy.

New tactics are being employed, to stop the bleeding such as pop up shops and automated convenience stores as retailers search for the next answer. Automated stores? You’ve probably seen small ones in airports in the last year. Basically, oversized vending machines that sell just about everything.

Yet in China, VC backed startups already have “fully automated convenience stores, which push customers to scan smartphone apps to enter the store, pay, and exit, eliminating the need for human store employees.” according to CBinsights. And examples of pop up retail have been seen in October every year for the last decade in former K-Marts.

These are innovations that are still being tested – but seem to have found a grove and acceptance as the norm.

Retail has been around since the dawn of time, and physical retail won’t ever disappear. But as consumers needs evolve, retail will follow. People want ease of use and the web made retail as a model change – and change drastically in a short period of time.

So how should we protect our assets?

Let’s continue to observe other industries, as they face change in order to learn lessons and build our companies in a way that prevents our hard work from being pulled out from beneath us.

This is pretty heavy stuff – but I’ll have more on this in another post.