Retail Bankruptcies and Store Closings - What Do They Mean for Retail Workers?
Posted: February 24, 2015
The recent announcement of Radio Shack’s bankruptcy is just one of many that have hit the retail industry in the past several months. In fact, in the past few months Wet Seal and Deb Stores also filed for bankruptcy and in 2014 many other retailers either filed for bankruptcy or announced major store closings. Take, for example, the anticipated closing of over 400 Office Depot/Office Max stores and over 300 Family Dollar/Dollar Tree stores, both the results of huge mergers not bankruptcy. Yet, with all this going on, National Retail Federation (NRF) President and CEO Matthew Shay recently said, “…retailers are optimistic about the potential that exists for healthy growth in retail sales and consumer engagement in 2015.” To understand what is going on across the industry, it pays to look below the surface of what the media focuses on.
Every business wants to grow, but there are cases where too much of a good thing can turn bad. Some retailers have opened new stores so quickly they could not keep up with the demands that come with the growth. Additional distribution requirements, logistics, and new and saturated markets all play into the decision to roll out new stores and when things are not planned and executed properly trouble can rear its ugly head.
Some retailers have suffered from the impact that old, outdated stores have had on their sales. Renovations and remodels don’t come cheap and with some retailers already struggling to stay profitable, extra cash to upgrade old stores is often just not available. This turns into a snowball effect for some companies and can eventually lead to store closings.
Unsuccessful Store Formats
In an effort to stay one step ahead of the competition, some retailers have experimented with store formats that simply didn’t work. An especially common trend has been expanding store footprints to larger square footage to try to create a shopping environment that differentiates a store from the competition. All that extra space comes at a steep cost and retailers who have not been able to generate more sales from that extra space have seen their profits dwindle. Some of these new formats have been successful, but the trend has not had a net positive impact across the industry.
Non-Brick and Mortar Sales
Online and other non-store sales are taking an increasingly big bite out of the traditional brick and mortar retail locations business and it’s a growing trend. The National Retail Federation estimates these non-store sales will grow by 7% to 10% in 2015 alone. That is a sizable chunk of the total retail pie. Online-only behemoths like Amazon are growing fast and traditional brick and mortar retailers are growing their online sales every year. This is going to be an ongoing issue for retail professionals who work in stores, or in support roles for those locations.
The flipside of the online retail equation is traditionally online only companies adding physical locations. When Amazon talks about opening a brick and mortar store in Manhattan, people listen. The company is touting its one-hour delivery in Manhattan, which is not the only reason they are opting for a store with a physical location, but Manhattan is not the only market they have targeted for opening a store. It isn’t clear how many other locations they may eventually open, but with their gigantic base of online customers and a brand that is one of the most recognized in the world, they are sure to be a major player in any arena in which they choose to participate.
Retail vs. the Overall Economy
Despite all these facts, it may not be as bad as the headlines may lead you to believe if you step back and look at the bigger picture. The National Retail Federation expects the industry to grow by 4.1% in 2015, which is slightly better than 2014’s 3.5% and much better than the projected growth rate of the overall economy, which is expected to grow by about 3%. The difference in those percentages may seem small, but the difference is huge number in terms of total dollars and it’s the biggest annual growth retail has seen since 2011. Not bad for an industry that is loaded with press releases about bankruptcies and store closings.
Another thing to keep in mind when looking at store closing information this early in the year is that the majority of retail store closings are usually announced in the first few months of each year. The total closings for the year are not announced evenly across each month of the year, so most of the bad news has already hit the press. That doesn’t mean you won’t hear more news about stores closing, but the lion’s share of announcements will be behind us in a month or so.
Mergers & Shifting Market Share
What is happening in many markets is a shift in the market share from one company to another. Two of the biggest mergers in retail, Office Depot/Office Max and Family Dollar/Dollar Tree, are affecting store openings and closings dramatically and these combined companies are taking market share from other companies. In fact, the reason they are closing some of their own stores is because of overlapping store reach in certain markets. By closing stores that have been competing with each other and adding the combined marketing and investment power that these bigger companies bring to the table, it changes the landscape. While in the short-term this will mean store closings, it will probably bring larger scale expansion in the long run.
On the other end of the spectrum from closings are openings. While the two big mergers are bringing store counts down, there are some companies that will have a big impact on the industry through organic expansion. Take Aldi, for example. Aldi has been on an expansion spree and it is picking up momentum. People are noticing Aldi’s efforts and in 2014, the company was recognized as Retailer of the Year by Store Brands, it received an award for product of the year and topped Market Force Information, Inc.’s list of leading low-price grocery chains for the fourth year in a row. Aldi also promoted its president of U.S. retail operations to Chief Executive Officer (CEO) of U.S. retail late in 2014 and announced the company will be opening 650 new stores across the U.S. The company’s plans will generate over 10,000 new jobs over the next three years.
While Trader Joe’s is not as big as Aldi (both chains are owned by the same parent company), it is also expanding. Trader Joe’s has made a name for itself, not only because of its quality products, but also for how well it treats its employees. The fact is, everyone in the Trader Joe’s food chain is treated well and paid well, so people love doing business with the company from every angle. Customers, employees and vendors all love this company and they generate nearly double Whole Foods’ average revenue per square foot. While the company is nowhere near as big as Aldi, at only about 350 stores nationwide, it plans to open 38 new stores in 2015. All this may add up to bad news for Whole Foods, which just highlights the earlier point about store closings boiling down to market share shifting from one company to another in many cases.
Aldi and Trader Joe’s are just a couple of examples of how organic expansion can play a major role in the growth of retail.
The Human Touch
Customer experience is something that is talked about quite a bit in retail. Even online-only retailers are constantly trying to improve their customers experience on their websites. No matter how user friendly a website is, though, nothing can replace the human touch customers get in a store with great customer service. Especially with products that involve customization, having a person walk you through the buying experience in person still has a strong appeal to lots of people. Buying a custom suit, or a dress that fits exceptionally well are just a couple of examples of situations that make shoppers want to walk into a store and deal with a human being in person. Technology is getting better at allowing people to customize things without involving another person, but it is going to be a while before the personal touch is not a part of the retail experience for many people.
What’s in it For You?
If you are a cashier, store manager, merchandiser, warehouse worker or an employer all of these trends affect you if you work in retail. You are in an industry that is growing and understanding the dynamics of your industry will help you manage your career better, if you’re an employee, and it will help you manage your workforce better if you’re an employer. If you work at one of the retailers that is experiencing store closings, know that jobs are out there and there are plenty of opportunities to start or advance your retail career. If you’re an employer, you need to understand that there is more media coverage of negative events, so your employees are probably hearing more gloom and doom than positivity about the industry in which they work.
The bottom line is staying up-to-date on what is going on in your industry is a key piece to the puzzle if you want to be successful. Also, remember that at least half, if not more, of job openings are not on job boards. How high that number is depends on what survey you happen to be reading because some focus on certain industries, professions or experience levers. That being said, every number we’ve seen says most jobs are filled outside of traditional job boards, so if that’s where you’re looking you’re missing the boat on a huge pool of great opportunities. The best jobs can often be found through recruiters who are in close touch with employers. They work with employers to find great candidates for job openings before the employers have to resort to a job posting the whole world can reply to. This saves employers a huge amount of time, money and other resources in sifting through applications from people who are not even close to being a fit for the job.
If you’re an employer and you’re scouring job boards for great candidates, you are not going to find people who are not actively looking for a job. They don’t have an active profile or resume for you to review, so all of those great people that are not looking will never even show up on your radar. Retail recruiters actively build and maintain relationships with people in the industry even when they are happily employed because most people will not work for the same company their entire careers. They can be that bridge between you and your ideal candidate.
The other advantage for you as an employer is recruiters act as a filter so you only interview the best-fit candidates without having to spend your time and other resources on potentially hundreds of applications for a single job opening.TAGS:
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