Killed Companies Got Too Big for Their Riches
BOSTON (TheStreet) -- When it comes to manufacturers and retailers, it's true: The bigger they are, the harder they can fall.
"There is a graveyard of once great, feared and dominant retailers," says retail analyst and historian Robert Spector, author of The Mom & Pop Store: How the Unsung Heroes of the American Economy Are Surviving and Thriving (Walker and Co., 2009). "Many of those businesses that were the Wal-Marts (WMT) - Get Report of their day are either no longer in existence or dramatically diminished, such as Montgomery Ward and Sears (SHLD) . Look at all the department stores that no longer exist, like Marshall Field's."
"It doesn't matter how big you are," he adds. "The nature of retail, whether it is a mom and pop store or a giant, is that you have to keep on your game. If you are not improving, you are falling behind. On many levels, I admire Wal-Mart in terms of the fact that they have been able to stay as powerful as they are and to expand. For a company that size it is really remarkable."
|
|
An empty Circuit City sits in the South Shore Plaza of Braintree, Mass. The chain, once the nation's largest electronics retailer, is a poster child for big companies collapsing under their own weight.
A poster child for big companies collapsing under their own weight was Circuit City, once the nation's largest electronics retailer.
An example of the bunker mentality that permeated the final, blunder-filled days of the chain is found in how it reacted to a parody in Mad magazine.
In August 2008, the humor magazine printed a fake Circuit City flier. Among the ad copy: "Visit our new store on Route 17, directly across the street from Best Buy (BBY) - Get Report , or visit any of our other 600 stores directly across the street from 600 other Best Buys." A Wii gaming system is advertised as "GUARANTEED IN STOCK ... if you are close friends with an employee who hid one in the back for you."
The response was a corporate jihad, with store managers ordered to remove and destroy any copies found in its magazine racks.
A nerve was touched, especially with references to its losing battle with Best Buy. In the early 1990s, Circuit City was the marketplace leader, with more than 400 locations; Best Buy was a struggling wannabe with only 70 stores. The roles reversed and it was Circuit City that was playing defense and continuing to lose business to not only its longtime rival but also Wal-Mart, online retailers and such office supply stores as Staples (SPLS) and Office Max (OMX) .
Computer City's slide into irrelevancy was hastened in March 2007 when, as a cost-cutting measure, 3,400 of its highest-paid sales associates were laid off. In essence, a statement was made that customer service wasn't a priority. Consumers complained, as did many employees, citing the changing company culture and high-pressure sales tactics (extended warranties, anyone?) forced upon them.
"I thought, 'This is the end for them,'" Spector says. "You can't take front-line people and demotivate them. It especially doesn't work in retail. It was only a matter of time before Circuit City went out of business. They had signed their own death warrant."
Don Eames, who worked for Best Buy in senior leadership positions for 17 years, including as senior vice president of retail stores, is author of an e-book that gives his insider's view.
He points out that Circuit City's response to Best Buy's growth was to expand its own footprint. But doing so, it paid far more attention to cheaper, less profitable "B locations" than geographies that would be sustainable. In 2000, the chain also made the unwise call to stop selling appliances, a surrender of sorts to increased competition from Lowe's (LOW) - Get Report and Home Depot (HD) - Get Report . In doing so, it underestimated the traffic its "white goods" offerings brought.
Last year, following bankruptcy and the inability to find a buyer, the chain shuttered its 567 retail locations. A few months later, it was reincarnated as a Web-only seller by Systemax, which owns online retailer Tiger Direct as well as 2.0 version of the similarly defunct Comp USA.
Does not compute
Apple (AAPL) - Get Report , Microsoft (MSFT) - Get Report , Dell (DELL) - Get Report and IBM (IBM) - Get Report may be driving today's high-tech world. But 30 years ago, computer innovation was the domain of Massachusetts-based Wang Laboratories. Founded in 1954, by the 1980s the company was pulling in annual revenues of more than $3 billion, making business equipment and computers that competed directly with IBM's product line.
What happened? In part, Wang was the victim of the increased competition and creativity emerging companies such as Apple, Sun( JAVA) and Hewlett-Packard (HPQ) - Get Report brought to the table for home users and the corporate world.
Many have also blamed a succession of company leadership, from founder An Wang to his son, Fred, as a turning point in the company's fortunes (the father would later fire his own son). Increasingly, premature announcements of not-ready (or even non-existent) products earned the company a poor reputation.
Wang Laboratories filed for bankruptcy protection in August 1992, later relaunched as Wang Global and eventually disappeared for good.
Search and destroy
Search technology has crafted a revenue-generating road map for the Internet, defined Google (GOOG) - Get Report as a technology powerhouse, made Yahoo (YHOO) a household name and prompted Microsoft to earn extra bling with Bing.
So why didn't some early pioneers in the space, such as AltaVista, stick around long enough to be part of the search engine revolution?
At its peak, AltaVista had 80 million users a year, but its popularity waned with the rocketing rise of Google.
AltaVista would fall into the hands of Compaq when its parent company was sold in 1999, and that change took the focus off search. The new strategy was to create a Yahoo copycat, a portal with shopping, entertainment and email. The idea failed miserably. AltaVista was later bought by a company called Overture Services that in turn was bought by Yahoo and relegated to back-end obscurity.
Shopping sprees
Sometimes companies don't so much die as just get eaten by rivals or go through an identity crisis. It can make for a convoluted family tree.
Marshall Field's, for instance, was bought by Macy's (which outlived the once equally popular Gimbels) in 2005 and all of its locations were assimilated.
Bradlees, a popular clothing and home goods retailer on the East Coast, had a brush with extinction back in 1995 when it filed for Chapter 11 bankruptcy. It survived and even looked to be rebounding a few years later. But, blaming the economy, rising utility costs, increasing competition and poorly performing stores, the chain finally shuttered for good when things took a turn for the worse by the turn of the century.
During the Bradlees era, soon-to-fail retail chains were swapping off each other's storefronts and logos on a regular basis. Bradlees took over some former Montgomery Ward locations and, when its fortunes seemed on the upswing, grabbed closed stores from one-time competitor Caldor's -- a general merchandise retailer recalled by many for its brown-on-brown color scheme. Several Bradlees properties, at the time of its first reorganization, were taken over by Ames, which later took over the competing Zayre's chain. Ames is no more, but one-time Zayre's offshoots still prosper as BJ's Wholesale Club (BJ) - Get Report and T.J. Maxx (TJX) - Get Report .
Sometimes companies can find life beyond bricks and mortar. Just as CompUSA and Circuit City were reincarnated online, so was the Sharper Image brand and Service Merchandise, a general merchandiser one might recall for its deli-counter-number approach to serving its voluminous jewelry sales.
Spector, who professes surprise that the merged Sears and Kmart are still alive and kicking, says it is important for companies to hire the right management. Apple wouldn't be Apple without (the once ousted) Steve Jobs, Jeff Bezos is the heart and soul of Amazon (AMZN) - Get Report and Starbucks (SBUX) - Get Report had to bring back CEO Howard Schultz to right its ship.
"You have to have people who understand retail running retail companies," Spector says. "You see that with Macy's. Terry Lundgren is a retailer, not a bean counter, so he understands. The three Nordstrom (JWN) - Get Report brothers who are running the company now grew up in this business. They started when they were 12 sweeping up the floor and breaking down shoe boxes. Those guys are merchants, and I mean that as the highest accolade. Two years ago, the stock was done to $12, today it is in the $42 range. How did they do that? They were so attuned to what was going on, they were able to make the right changes. They adjusted inventory. They got out of some leases that didn't seem a good idea going forward. You can't sit around sucking your thumb, wondering, 'What are we going to do?'"
>To follow the writer on Twitter, go to http://twitter.com/josephmont.
>To submit a news tip, send an email to: tips@thestreet.com.
>To submit a news tip, email: tips@thestreet.com.
RELATED STORIES:
>>Business Looks to Win at 'Gamification'
>>Technology Toys Make Waiting to Buy Pay Off
>>Even Buffett Has Investment Lessons to Learn
Follow TheStreet.com on Twitter and become a fan on Facebook.
Get more stock ideas and investing advice on our sister site, Stockpickr.com.