Monday, January 18, 2016

If your business gets smaller...your business gets smaller

"We're going to get leaner and meaner."

"We're going to rightsize."

There are times when cost-cutting measures actually work. You may remember that Starbucks closed approximately 600 stores in 2008 and 2009, including two in my area. Since then, Starbucks has opened a number of stores, including one just on the other side of the freeway from the south Upland store that they closed in 2008. The difference? The new stores have better locations and better facilities, such as drive through windows.

But there are other times when cost-cutting DOESN'T result in a dramatic improvement in fortunes. I was writing about the poor health of Sears (previously Sears plus KMart) two years ago, and last I checked, Sears had not suddenly become the dominant retailer. In fact, I wrote about a future store called "Spenacy's" - a theoretical merger of Sears/KMart, J.C. Penney, and Macy's. A few years ago, such a combination would sound outlandish. Today, it's quite possible.

And even when retailers aren't merging with each other, they are "rightsizing" by closing some of their locations. Part of this is dictated by the mergers themselves - when my local Montclair Plaza had Broadway and Macy's as anchors, and Broadway was acquired, Macy's didn't see fit to have two anchors. However, some of these store closures are dictated by other factors.

Presumably the stockholders (these are normally publicly traded companies) are ecstatic, because the company's costs go down. But a reduction in costs itself doesn't necessarily lead to better corporate health.

CNBC...points out several examples of retailers — including Sears, Aeropostale and JCPenney — shutting down locations in an attempt to reduce sales losses, only to find their sales not improving as expected or even continuing to worsen.

The trend, the outlet attests, cannot be encouraging for Macy’s as it prepares to close 36 of its stores in the wake of a 4.7 percent sales drop during November and December.

The theory is that if you close the store that is two miles away, customers will happily drive to the store that you didn't close that is ten miles away. (Note to Albertson's: since you closed the store down the street from my house, you don't need to send advertisements to my door any more. I'm not going to drive several miles to buy milk and bread...especially when there is a Walmart just a quarter mile away from your previous location.)

But perhaps the biggest issue with rightsizing is this:

Anjee Solanki, national director of retail services at Colliers USA, shared with the outlet yet another reason why retail chains ought not rush to shut down stores to solve their problems: Doing so can signal to consumers that the business is in trouble.

“If you start closing stores very quickly, what does that do from a perception standpoint?” posited Solanki.

Two words: Radio Shack. But hey, things were sounding great after the holiday season and after the takeover by new owners:

Without providing figures, [Chief Marketing Officer Michael] Tatelman asserted that holiday sales had been “good.”

“We aggressively filled stores with inventory and staff, and we are happy with the results,” he said. “We are pleased where we are.”

Of course, the new owners have to overcome the perception of the company:

“People go in there, but it’s cheaper to buy things someplace else,” said Ashanti Harper, 23, who designs and makes children’s party clothes, including custom tutus. She noted that kiosks throughout La Gran Plaza offer cellphones, tablets and accessories, one just a few feet from RadioShack’s door.

“When I think of RadioShack, I think electronics, but I don’t think cheap,” Harper said. “ I think old-fashioned.”

At least the company has substantially cut its costs.
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