Why do so many retailers fail?

[free4now]

I think back to the days when many housewives would dabble in making their own clothes, tailors and shoe repairmen did good business in repairing clothes and shoes, and bums would walk around wearing rags stitched together.

Today clothing prices are so low that even homeless people find it easier to throw out a damaged garmet and replace it, rather than trying to repair it.

So people have changed their habits from maintaining and repairing their wardrobes to replacing their wardrobes every few years. And because they are replacing these things more often, it's more important that they be "au currant": In style, maximum functionality, not obsolete. It's not just clothes but housewares, gadgets, outdoor gear, almost everything that retailers sell.

Also, teenagers are more style conscious than ever. As they connect to cultures around the world through the internet, they have more styles to lust after, and more opportunities to find a narrow style niche that makes them feel unique (even if it's based on cheap chinese mass produced baubles).

Consumers have more options than ever, so the "moats" that retailers try to erect are more and more fragile, and tend to break quicker.

 

[John23]

Here's some (probably) not very insightful speculation on my part.

I've occasionally read that an interesting metric to study is number of square feet of retail space per capita. An article I read perhaps 10 years ago basically said that there was about 2 to 3 times as many feet^2 per capita as in the 1960's/1970's. If you assume that the amount of retail floor space was sufficient to serve the needs of the populace in the 60's/70's, then these numbers would suggest that everyone was buying 2 to 3 times as much as they were in in 60's/70's. At the time I read the article, I was much wealthier than I was in the 60's/70's, but I'm pretty sure that I wasn't buying 2 to 3 times as much stuff as before. For example, I wasn't eating 2 to 3 times as much food or wearing more then a pair of shoes at a time. Thus the numbers suggest that there is way too much retail (not a big surprise, I know).

If we assume the survival of the fittest, then forces must be at work to correct this situation. I speculate that that these forces are called Walmart/Costco/etc. It is generally argued that the success of these enterprises is due to their business acumen. However, an alternate explanation is that they have unwittingly figured out how to exploit the excessive number of feet^2/capita and reduce that number by driving other businesses into bankruptcy. The implication is that once the feet^2/capita is reduced to what it was in say the 60's/70's then the business advantages of Walmart/Costco will vanish. There will be a resurgence of smaller retailers. Peak oil might also hasten this day.

The above is all speculation, so treat it as such.

I've seen similar numbers. The square feet of retail per person, it's some astronomical number. Although, is it comparing apples to oranges?

In the 60's and 70's, you had Joes hardware, or XYZ retailer (Woolworths). Then these monster companies came in, Walmart, Home Depot, they're about 5 times as big. But they've consolidated 6 hardware stores under one roof, or 4 normal sized retail stores, and it's Walmart. And the aisles are wider than a normal sized store. I dont know if square foot per person is all that accurate.

But there's still way too many chains. They're all way too similar to each other.

Kind of like in a movie, when a guy is trying to figure out the truth, and he runs to a magazine rack, and flips through a magazine, and all the pictures are the same. He starts seeing the same images and models everywhere. Then he looks up at a billboard and it's all the same.

I've started noticing it more the last 3 to 5 years. The supermarkets try to sell everything (dvds). There was probably a point where there was some differentiation to the end customer, but with walmart, costco, and this media overload of the last 5-10 years, there's not much orginality left.

 

[free4now]

I was just thinking about how much Banana Republic has changed over the years. They are one of the most long-lasting small clothing retailers I shop at. When they first opened up they sold safari gear and published a travel-anecdote-filled catalog very similar to the "J Peterman" company that gets lampooned on Seinfeld. Their stores had fake thatched roofs and their dressing rooms were covered in vintage postcards from exotic localles. Now they sell understated sleek city clothes out of almost sterile white-walled store. A completely different product and environment, really.

What consumers want is always changing. Most stores just go out of business when that happens, but a few manage the tightrope of changing enough to meet current styles without changing enough to alienate their customer base.

 

[Moemg]

The one retailer who deserves to go bankrupt is Victoria's Secret . It changed it's image from nice underwear for 20-50 year olds to pink teenybopper clothes . They lost money and their clientele and said they were returning to their old image but have they ? No , it is still the glaring teenybopper clothes.

 

[cute fuzzy bunny]

Just as a point of reference, I'm okay with their direction(s).

 

[haha]

I think back to the days when many housewives would dabble in making their own clothes, tailors and shoe repairmen did good business in repairing clothes and shoes, and bums would walk around wearing rags stitched together.

This may be true in the suburbs, but in my small neighborhood are 3 tailors and two shoe repairmen. Plus an old fashioned full service gas station with 2 repair bays. All these businesses have been here along time.

I sometimes buy (formerly) very expensive suits from high end Charity Thrift shops, then take them to the local tailor to have the pants altered. And I resole Birkenstocks often. Angel the shoe guy who is closest to me tries to talk me out of getting something repaired that he doesn't feel is fully worn out.

I have noticed that hipsters and gay men don't go around in sneakers all day. They have real leather shoes that they pay a lot for.

Ha

 

[harley]

It's the internet! That evil weapon of bargain shoppers everywhere.

Seriously, I've found that there is money to be made investing in retailers. In my gambling fund (not my real investments) I've made sime significant gains. You just have to be willing to get out fast, since so much of it is fad related. Over the years I've made nice profits on Whole Foods, Staples, Crocs, Gap, QVC and TJMaxx. Mostly I watch what my daughter and her friends are buying, and also my wife. Then once the thing gets general acceptance and starts trying to move beyond what got them there, I sell. Of course, I've lost some money doing this too. Sometimes just with bad timing, sometimes with bad choices. But since it's equivalent to playing the slots, I'm satisfied overall.

Having said that, I think the reason retailers don't last is that they are all selling the same crap for too small a margin, and people's likes and dislikes are fickle. Retailers hate people like me. I cruise the malls, look at the stuff, eat any free samples offered, then go home without buying anything.

 

[Khan]

It's the internet! That evil weapon of bargain shoppers everywhere.

Seriously, I've found that there is money to be made investing in retailers. In my gambling fund (not my real investments) I've made sime significant gains. You just have to be willing to get out fast, since so much of it is fad related. Over the years I've made nice profits on Whole Foods, Staples, Crocs, Gap, QVC and TJMaxx. Mostly I watch what my daughter and her friends are buying, and also my wife. Then once the thing gets general acceptance and starts trying to move beyond what got them there, I sell. Of course, I've lost some money doing this too. Sometimes just with bad timing, sometimes with bad choices. But since it's equivalent to playing the slots, I'm satisfied overall.

Having said that, I think the reason retailers don't last is that they are all selling the same crap for too small a margin, and people's likes and dislikes are fickle. Retailers hate people like me. I cruise the malls, look at the stuff, eat any free samples offered, then go home without buying anything.

I go to the mall once a year or so, when I absolutely have to buy something (cell phone replacement, shoes, battery for garage door opener...) it's where there is Radio Shack/ATT store.

 

[CuppaJoe]

Now that I'm retired I expect to "shop" in my closet for a long time. Repaired some sandals myself and can put clothes together in a different way to be more casual. Retail will be in even greater trouble as the baby boomers leave the workforce.

 

[cute fuzzy bunny]

I've made sime significant gains. You just have to be willing to get out fast

Ahh, "momentum investing". Have you actually tallied up both the gains and losses from these activities? I used to momentum invest in all sorts of markets. When we were in an overall bull, I was a genius. During a bear, I forgot. In the middling markets I remember my successes but some other bastard was the cause of my failures...

 

[free4now]

This may be true in the suburbs, but in my small neighborhood are 3 tailors and two shoe repairmen. Plus an old fashioned full service gas station with 2 repair bays. All these businesses have been here along time.

I sometimes buy (formerly) very expensive suits from high end Charity Thrift shops, then take them to the local tailor to have the pants altered. And I resole Birkenstocks often. Angel the shoe guy who is closest to me tries to talk me out of getting something repaired that he doesn't feel is fully worn out.

It does seem to be a suburban phenomenom. When I was living in the suburbs the only convenient tailor/shoe shop would charge ridiculous labor rates. His system was that you drop the item off, he does the work on site, and only then does he give you the price. The price always made me wince; he knew he was almost literally the only game in town. Resoling my old Birkenstocks cost about the same as a brand new pair from Costco, so I stopped resoling them long ago.

Now that I'm in the city I have several Asian owned tailor/repair/cleaners within walking distance. The rates they charge are about a third of what the suburban guy was charging, and they quote prices up front in writing. They send their work out to a central [-]sweatshop[/-] plant. Usually the repair itself costs about what the supplies for the repair would cost me at a sewing store.

So now I am getting back into having things repaired, thanks to the economies of scale that the central plant produces. Just like people are buying things at Big Box stores because the economies of scale trounce the smaller retailers.

 

[shoe]

Do peoples dreams get in the way of good decision? About 6 months ago a store opened in the local mall that I knew was doomed to failure. It is a store you go to to paint ceramic doodads like plates and tacky looking clowns. I walk that mall several times a week and I have never once seen a single person in there except the owner. It's a large, attractive store and the rent must be sky high. How can a person think they would have enough customers who want to make ashtrays to make a living?

 

[cute fuzzy bunny]

Funny, we have a place like that and it was going great guns, but I havent been by there in a few months. I'll have to check it out.

 

[calmloki]

Woo Hoo! 7:03 AM pac. Dipped under 10,000!

!

 

[DangerMouse]

I was at the mall today and it was probably the quietest I have ever seen it. This was over the lunch period, and even in Starbucks there was no-one in line. None of the stores seemed busy, so I would be expecting to see more of the retailers in trouble.

Part of the problem which I see at least, is there is nothing I want to buy. Obviously there is nothing I need to buy, but when you go shopping and nothing on offer by the retailers tempts you it is not a good sign.

I used to buy a lot at the Gap and Banana REpublic, but I have found in the past couple of years their clothing is rubbish, poorly fitting, styles are more about trend than what will look good. I don't mind buying a trendy top, but if I do I figure I am going to only wear it for 1 season so I am not going to pay BR prices. The other thing is I refuse to pay $100+ for an item that is made in China knowing how little it has likely cost.

 

[free4now]

Do peoples dreams get in the way of good decision? About 6 months ago a store opened in the local mall that I knew was doomed to failure. It is a store you go to to paint ceramic doodads like plates and tacky looking clowns. I walk that mall several times a week and I have never once seen a single person in there except the owner. It's a large, attractive store and the rent must be sky high. How can a person think they would have enough customers who want to make ashtrays to make a living?

One of those places existed for about a year on University Ave in downtown Palo Alto, right before the dotcom collapse IIRC. I remember reading back then that that neighborhood was the most expensive business real estate in the country. Good times.

 

[harley]

Ahh, "momentum investing". Have you actually tallied up both the gains and losses from these activities? I used to momentum invest in all sorts of markets. When we were in an overall bull, I was a genius. During a bear, I forgot. In the middling markets I remember my successes but some other bastard was the cause of my failures...

Yeah, I've kept track. I actually am quite a bit ahead on retail, but mostly because I get out fast when I think things are going south. I've actually done pretty well in my individual stocks, but enough has been due to luck and failure to sell that I would never try to support myself on it. I've had my great buys (Cisco at 7, AAPL at 9, etc). However, I've also had enough Enron's, Worldcom's, and Primus Telecoms to know I'm gambling whe I pick stocks. I actually haven't bought any in a few years. I did sell most of my AAPL at 175.

I'm thinking it's about time to buy a few more companies I've been watching for a few years with my AAPL cash. GE, BRK.B, maybe Pfizer, J&J, good stuff like that. That J&J never goes down much, though.