Another Store Bites The Dust: Why Retailers Like Shopko Fail

This week, Shopko, the long-beleaguered department store chain, announced it would begin a complete liquidation. It now joins a growing list of once-prominent retail brands (Payless Shoes, Toys "R" Us, Gymboree) that first tried to shrink to prosperity, only to finally admit that the real issue was lack of customer relevance and that no turnaround was possible.

An announcement of yet another store—or entire company—biting the dust barely qualifies as news anymore. Struggling retailers have been taking an axe to their store fleets for several years in a largely vain hope that many fewer stores would make them dramatically more competitive. While overbuilding, too much debt and/or the shift to e-commerce are often blamed for this large-scale rationalization of space, by and large the big culprit continues to be many retailers' failure to meaningfully differentiate themselves and keep pace with shifting customer desires.

With Shopko's announcement, at least according to a leading research firm, the U.S. is on pace for more store closings this year than last. While this seems to support the popular retail apocalypse narrative, it is more accurate to say that the boring and mediocre middle continues to collapse. As I have pointed out before, retail continues to grow, and dozens of retailers continue to successfully open stores. So there clearly is ample evidence that many retailers failed to get the retail apocalypse memo. Nevertheless, it is a virtual certainty that hundreds of additional stores will close in the coming months.

While unsustainable capital structures (Neiman Marcus) or gross mismanagement (J. Crew) can explain a handful of situations where retailers have gotten into trouble, the vast majority of declining sales, anemic profits and major store closings are concentrated among brands that continue to swim in a sea of sameness. As long as we have retailers that continue to provide (at best) an average experience when consumers have many superior alternatives, we will continue to see share migrate from boring brands to remarkable ones. And while closing stores may improve some poorly performing companies' operating losses we must keep in mind that, with rare exception, every retailer that has gotten into serious trouble in the last few years has a revenue problem, not a too many stores problem.

Over the course of my career I have been part of senior management teams that made the decision to close many hundreds of stores. I have personally told quite a few people that their store was closing and that they would be out of work. I helped lead the liquidation of a chain of about 100 stores. It is never easy and I am keenly aware that I often got the far better end of the deal--sometimes much more out of luck than merit.

Regardless, in every situation I was directly involved in, or have solid knowledge of, these brands didn't go out of business--or shrink to a shell of their former glory--because they were legislated out of business or because some new competitor came totally out of left field and radically disrupted a once winning value proposition. What happened then, and what is mostly happening now, is rather simple and straightforward.

1. We neglected to understand how our core customers' priorities and shopping journeys were changing.
2. We failed to see that what was once scarce (information, distribution access, product availability, etc) no longer was.
3. We believed a slightly better version of mediocre would be sufficient to win.
4. We watched what was happening rather than acting decisively, including being willing to compete with ourselves.

Despite what often counts as news these days, store closings, retail bankruptcies and entire liquidations are not a recent phenomenon. In fact, as a reminder of the ebb and flow of retail winners and losers over the past 50 or so years, Walmart CEO Doug McMillon keeps a photo of the top retailers over the decades on his phone. Shift happens.

What IS new is the ever increasing pace of change, how radically the power has shifted to the consumer and the complete untenability of remaining stuck in the boring middle.