RSR Research: Is 50 Years the Expected Useful Life for Any Retailer?
Through a special arrangement, presented here for discussion is an excerpt of a current article from Retail Paradox, Retail Systems Research's weekly analysis on emerging issues facing retailers.
At the SAP Retail Forum in Las Vegas last week, author Michael Treacy stated what he saw as the ultimate paradox in retailing: everything done in early years of a company's life sows the seed of its eventual destruction. In fact, he said, "most retailers last 30 to 50 years, and then die." Mr. Treacy offered this solace: it could be worse! The "casual dining" business lifecycle is 20 years.
Although Mr. Treacy, co-author of the influential 1995 book entitled The Discipline of Market Leaders: Choose Your Customers, Narrow Your Focus, Dominate Your Market, engaged in a bit of hyperbole to make his point, he's "directionally" correct. Some mighty brands have fallen. Just to name a few:
- Montgomery Wards (1872-2001)
- Ralphs Grocery Stores (1873-1997; merged with Fred Meyer)
- Fred Meyer (1931-1999; merged with Kroger)
- Thrifty Payless (1919-1998; merged with Rite Aid)
- Longs Drug Stores (1938; announced sale to CVS in 9/2008)
- Albertsons (1939-2006; split acquisition by Supervalu and private ownership)
- Mervyns (1949; filed for Chapter 11 in 7/2008)
Mr. Treacy attributed retailers' demise to what he called "the science of backsliding," or putting it more bluntly, "companies lose their mojo." According to the author, there are four basic reasons for this:
- Poor strategic foresight; missing shifts in the market
- Management hubris
- Unforeseen challenges; something unexpected happens
- Their luck runs out
Whatever the reason, said Mr. Treacy, the result is a "regression toward the mean," and, as every retailer knows, being "average" is a really bad place to be. Mr. Treacy stated that one of the biggest challenges that mature businesses face is the planning process itself.
"Top-down planning followed by diligent execution is killing us," said the author. "Companies typically bland it down by over-analysis, planning and execution strategies." The result is that they limit their ability to react to the dynamic, unpredictable business environment. Mr. Treacy stated that one-third of all the business plans that he's been asked to advise on were "dead wrong."
RSR research has pointed out more than once that it's not top-down planning that's killing retailers, but rather "fractured planning processes". That problem consistently shows up as one of retailers' most pressing business challenges. These findings typically relate to tactical/operational planning challenges (for example, the typical disconnect between merchandise planning and financial planning). What we can agree with is that multi-year "strategic planning" has lost a lot of its meaning in the fast-paced and highly reactive world of retail. Mr. Treacy points out that strategic planning typically has a "one-year to plan, two-three years to execute" cycle, but it's awfully hard to see three years ahead.
Putting these two challenges together, it's not difficult to see how retailers can get so lost. They can't visualize the future, and their tactical/operational planning processes don't work either.
Discussion Question: Do you similarly see a 30-to-50 year lifespan in general for retailers? If so, what factors inevitably cause a retailer's eventual decline? If a primary issue is strategic planning, is the main problem relying on a top-down approach? Or is it fractured planning processes?