Turning Points 2008: A Terrible, Horrible, No Good, Very Bad Year

Dec 19, 2008

Commentary by George

note: In what we plan to make an annual end-of-year tradition, RetailWire
has compiled a list of the most significant retail industry "Turning
Points" of 2008. (See our news
) What follows is the eighth in a series of discussions
based on the list.

Recently rummaging through
boxes of books at home, I came across a copy of Alexander and the Terrible,
Horrible, No Good, Very Bad Day
. For those not familiar, the children’s
book involves a young Alexander who wakes up in the morning to find gum
in his hair, goes to the breakfast table and watches his brothers pull
prizes from their cereal boxes while he only finds cereal in his. It doesn’t
get any better for Alexander at school, the dentist office and at the various
points through the rest of the day. As he’s getting ready to go to sleep
at night, full of misery, his mother’s words ring clear. "Some
days are like that, even in Australia." (You’ll have to read the book
or go to the Kennedy Center website to check out a reading for context
to the down under reference.)

Retailing in 2008 has
been very much like Alexander’s experience except spread over 365 days.
While things don’t go well for him (and many retailers including Linens
‘n Things, Mervyns, Circuit City, etc.) there are those around him/them
that are doing quite well (Walmart, Aldi, dollar stores, club stores, etc.).

There’s no doubt that
the past year has been one of the most tumultuous times in modern retailing
history. Prices went up and consumers cut back. Credit got tight and consumers
pulled back even further. Chains and independent retailers started to close
stores and some went the liquidation route. No, it was a terrible, horrible,
no good, very bad – year. Maybe next year will be better.

Discussion Questions:
What were the major mistakes made by struggling retailers in 2008? What
right choices did those who are succeeding this year make? What are you
looking for from the retailing industry in 2009 and 2010?

Please practice The RetailWire Golden Rule when submitting your comments.

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13 Comments on "Turning Points 2008: A Terrible, Horrible, No Good, Very Bad Year"

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Herb Sorensen, Ph.D.
13 years 5 months ago

It’s not a very rational business, although rationality, maybe unwittingly, drives the fundamentals. And the fundamentals are that if you provide large amounts of stuff in a large amount of locations to a large amount of people (the shoppers), those shoppers will work it all out and spend massive amounts of money. If you are not getting your share, whether your enterprise is of one or one million, the problem is between your ears.

A mentor told me years ago, someone is always doing well, just make sure you’re one of them. I haven’t always been, but I don’t look at group problems as mine. Again, true for one or a large business.

Cathy Hotka
13 years 5 months ago

The number of layoffs next year is going to be eye-popping, and growing unemployment will offset the increase in sales made to customers who are nursing a pent-up demand for something new.

The big question for retailers is whether they’ll be able to fix the credibility-busting problem of out-of-stocks. Having the right inventory of basics is a giant revenue opportunity.

James Tenser
13 years 5 months ago

2009 will be a flat, scary year for retailers without a plan. I agree with David that we’ll see a few more bankruptcies before any upturn. Severe pressure on the big middle will cause innovation to come from unexpected quarters. Will someone roll out a renewable energy products superstore chain? Will the close-out business surge due to a flood of excess goods from liquidations? Will the automotive aftermarket business enjoy a blip as folks hold onto their cars longer? As they say in pro sports, next year will be a “rebuilding year.” Don’t expect too many wins as the chains work on conditioning and fundamentals and try to position themselves for a rebound in 2010.

David Livingston
13 years 5 months ago

The mistakes were made before 2008. Retailers window dressing themselves up for sale waited too long to sell out. Now they are stuck with continuing to operate in a weak economy. The smart retailers like Wal-Mart began to cut back on new store openings. This was a really clever move. The anti-Wal-Mart crowd said it was due to their efforts to slow Wal-Mart down, or that it was Wall Street telling Wal-Mart they were taking sales away from sister stores. Wal-Mart listens to no one but Wal-Mart. Turns out it was just a smart move because Wal-Mart could see that spending would be down.

For 2009 and 2010 I’m looking for several big name retailers to go bankrupt. Their best locations will be cherry picked by the competition. And for sure, it will finally be the end to Sears/Kmart.

Gene Detroyer
13 years 5 months ago
Certainly, the brand message is very important and one that I have harped on time and time again in this column. But, don’t forget the operations side. Wal-Mart operated in the best of times with a philosophy that efficiency is most important in operations. They saw their success in their own hands. Unfortunately, most retailers don’t see it that way. Most retailers use good times to cover poor practices. Most retailers rely on the suppliers to solve their problems. Consider, the situation where Wal-Mart and a supplier arrive on a price. Wal-Mart sets its retail based on some operating margin. The manufacturer sells the same product at the same price to the Wal-Mart competitor. The Wal-Mart competitor sets a retail which is inevitably higher than that at Wal-Mart. The competitor’s competitive shopper finds the Wal-Mart retail lower. The competitor then, deducts the difference from the manufacturer’s invoice, claiming that the manufacturer must be selling it to Wal-Mart at a lower price otherwise the retail price would be higher. Bet on Wal-Mart and the retailers who… Read more »
Carol Spieckerman
Carol Spieckerman
13 years 5 months ago

Wal-Mart’s perfect-for-the-times marketing and its leave-no-opportunity-behind “win, place, show” growth categorization have my vote for “right choices.” I also laud Urban Outfitters (third quarter profit up 31% with sales up 26%) for different reasons. They’ve managed to thrive and emerge as an authentic brand choice in a trend-less, over-stored, ruthlessly discounted space. Among their right choices: engaging employees and customers in transparent dialog and leveraging social media to the hilt (check out blog.urbanoutfitters.com), understanding the full range of its customers’ cravings and not sweating parental opinion too much (check out the merch in the stores) and encouraging individuality and creativity in the stores (watch those store associates make every store their own) and at corporate HQ (pretty much the Google of specialty apparel in terms of employee perks). They’re a lesson in how to keep it real and wonderful for a generation of talented and fickle employees and consumers.

Jerry Gelsomino
13 years 5 months ago

I agree this was and still is going to be a terrible year. The beginning of 2009 is going to be even more challenging. The best advice for retailers is to stay nimble, aggressively observant of trends, do go to far in more than one direction, but keep experimenting on what works. There is no crystal ball out there to tell you what to do, and too many of those who have been relied on, turned out to have their own agenda. So tell the truth, listen for honesty, and maintain the highest ethics. That is what is needed by retail executives and their employees.

Here’s to a Hopeful New Year!

Craig Sundstrom
13 years 5 months ago

What was retailer’s biggest mistake in this terrible, horrible, no good, very bad – year?

Answer: Overreacting.

David Biernbaum
13 years 5 months ago

The Walmart formula is working the best because they have a consistent and credible message to consumers. Many other retailers have counted on the manufacturers and suppliers to take the hits in order to offer hot consumer deals and that simply doesn’t work too well in this type of economy.

Dick Seesel
13 years 5 months ago

David’s right: Walmart hit on a theme at least a year ago (“Save money, live better”) that resonated throughout 2008, and they never deviated from it. Many other retailers wavered between value messages and more aspirational branding that seemed at times tone-deaf to their customers’ mindset. Granted, the spike in oil prices during the summer and the shocks to the financial system this fall have put the brakes on everyone’s discretionary spending — but there has also been a lack of newness, “must-have” items or fresh trends contributing to the general sense of retail malaise.

Max Goldberg
13 years 5 months ago

One major mistake made by some retailers was getting caught in the middle. To have any chance of success in 2008, a retailer needed to go value or luxury. Trying to thread the needle between the two just would not work.

Walmart did a great job of returning home to its value roots. A+F is staying the course as a high-priced brand. Where do you fall?

If a retailer tried to be in the middle, their message became confusing and the likliehood for success diminished; witness Mervyn’s demise and Target, before it returned to a value message.

Unfortunately, 2009 will see more of the same.

Brent Streit Streit
Brent Streit Streit
13 years 5 months ago
I think it was a big mistake for Target to think that their credit card portfolios were profitable. I don’t consider increased late fees and lower monthly payments by consumers a promising sign. I think it’s going to be interesting to see how Walmart and Target will fair with both of their CEOs exiting, stage left in the past 12 months. We really need to see if the unions will be successful in organizing these major corporations that dictate the quality of life in the U.S. The easy money is not available any more for purchases or expansion. Areas that were thought to be growth areas are in many cases ghost towns. How will California and Florida recover since real estate and equities are no longer trusted by the vast majority of the public? Look for thousands of more store closings in the next two years. Walmart, Target, Walgreens and CVS will continue to gain market share. Sears Holdings, Rite Aid, Dillards, and RadioShack will have major negative news in the near future.
Mark Lilien
13 years 4 months ago

Capital allocation is the #1 survival skill when capital isn’t readily available at any price. Retailers who paid too much for acquisitions (buying other companies or opening new stores or buying their own stock) and retailers with excessive leverage (debt) are getting hammered. You don’t have to be well-run or very smart if you own your real estate, purchased at a low price years ago (or own cheap leases signed years ago), and aren’t interested in fast growth. And it really helps if your competitors are highly leveraged or exceptionally unskilled. It’s a big advantage if you can sell locations to franchisees. Let them put up the capital and have the hiring headaches. Any wonder why McDonald’s is up 10% while the S+P 500 is down 35% in 2008?


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