How to Go Out of Business

Steven Dutch, Natural and Applied Sciences, University of Wisconsin - Green Bay
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Although the economy is having a tough time, a depressing number of businesses are still surviving. In an effort to help these companies achieve the success of Enron, I offer helpful hints for failing in business, based on actual observations of my own.

Case Study 1: A Mom-and Pop Grocery

I lived for a year outside New York City in 1975-76. There was a lot being written in those days about the demise of the corner mom-and-pop grocery store. So, since there was one just around the corner, I patronized it. Then one day I went in to buy a paper and was told the papers on the counter were for "his regulars." Not long after, I went in to get something and waited ten minutes while the owner chatted with one of "his regulars." I decided "let 'his regulars' keep him in business." After that, I went to the supermarket.

And no, I didn't discuss my concerns with the proprietor. Anyone stupid enough to watch a customer wait while he carries on a personal conversation is too stupid to change and too stupid to be in business.

Not long ago, while traveling in Vermont, my wife tried to buy a few things at a souvenir place. She waited for ten minutes while the proprietor gave directions and generally chatted with someone else. So she put her purchases on the counter and walked out.

"Personal service" is great if you're the one getting the service. But for everyone else, it often means "lousy and inattentive service."

Case Study 2: Losing the Vision

When I first moved to Green Bay in 1976, I used to frequent a hardware store not far from my home. It was a pretty good, well stocked, old fashioned hardware store. And pretty successful - successful enough to expand. But did they expand to include a broader array of hardware? Nope - they went in for kitchen utensils and housewares. The only problem with that plan was that not far away was BuyStuffCo, which had only a little hardware, but lots of housewares. Meanwhile, the hardware store reduced its array of hardware and went to the generic plastic baggies of nuts and bolts. In terms of hardware, it was little better than BuyStuffCo, and in terms of housewares, it was still greatly inferior. After trying and failing to get some needed items there a few times (things they used to carry when they were unsuccessful), I stopped going. Soon after, they went out of business. I didn't miss them a bit.

Case Study 3: Obsolete Methods

My hardware needs were well taken care of not long after when UsefulWorld opened. This is a cool store, starkly utilitarian and loaded with stuff. In addition to hardware, they have farm supplies like tractor tires, teat cream and 50-pound salt blocks that your so-called classy stores like Bloomingdale's and Neiman-Marcus never even heard of. Nevertheless, I don't go there as often as I used to.

It was because of paving blocks. I was laying a sidewalk and needed a dozen or so to finish the job. UsefulWorld had been successful enough to expand, but the store was hemmed in by streets and had to put a lot of construction materials across the street in a separate yard. I knew they had lots of bricks - I had seen a large pile out in the yard not long before and this style of brick wasn't selling all that briskly. Nevertheless, the inventory in the store, updated by hand, said there were only a few bricks left, so before writing me up a yard ticket, the clerk called the yard for a quantity check. After waiting ten minutes for an answer, I went to another store where the inventory was updated by computer, where I knew the store had an accurate count, and customers could go directly to the yard to load up. And UsefulWorld is no longer my first choice when buying supplies.

Case Study 4: How Not to Compete

BuyStuffCo and another chain, ThingsLand, were the two main department store chains in Green Bay for a long time. In response to flat sales, both tried different strategies to lure customers. ThingsLand decided to go upscale. They widened the aisles, eliminated most of their stationery and school supplies, automotive needs, and hardware, and emphasized clothes and housewares. I gather they've been fairly successful, just not with me. They're still there and I don't hear any dire tales of their imminent demise. They don't have anything I need or want, so I don't go there much any more.

BuyStuffCo decided to stay low key to the point of getting a bit seedy. Meanwhile, HumungousCo, a huge discount chain, has opened up. BuyStuffCo is really taking a pounding from this evil juggernaut that crushes all competition in its path. Well, maybe.

Since I was over in that part of town, I stopped in to BuyStuffCo to get some new light timers in preparation for a trip. I didn't see any. So I asked a clerk. He said they'd be over in the Christmas section, because that's when they sold most of them. I had never heard of light timers being a seasonal item before; if anything, I'd expect them to sell in the summer when people are on vacation. But the clerk said they only stocked them seasonally.

So I went over to evil, monopolistic, HumungousCo. As part of their diabolical plan to crush weaker competitors, subjugate the proletariat, and achieve global hegemony, they had half a dozen varieties in stock. So when BuyStuffCo goes belly-up, I will not believe it's because HumungousCo stifles competition, but because the competition gave up competing.

HumungousCo is widely accused of destroying local businesses by undercutting prices. I don't shop at HumungousCo because of price. I go there because I can depend on them to have what I am looking for. BuyStuffCo and ThingsLand were dominant in my area for years. They had every opportunity to expand their inventory to equal or surpass HumungousCo, and chose not to. Also, HumungousCo is open when I need things. Before it opened, I can't count the number of times I needed something for the coming week, only to realize that BuyStuffCo and ThingsLand closed at 6 PM on Sunday. Wonder whose bright idea that was?

Update: It seems my Philips screwdrivers have been going to the same alternate reality that missing socks go to, and since I was over by BuyStuffCo, I stopped in to their hardware section. Sets of screwdrivers? Check. Pairs of flat head and Philips screwdrivers? Check. Except I have more flat-head screwdrivers than I can shake a stick at. Guess where I finally found a box of generic Philips screwdrivers sold individually? Now let's not always see the same hands - that's right - evil HumungousCo.

A Unified Model of Failure

Opening Day 

WidgetWorld opens up with every imaginable variety of widgets. They come in every conceivable color and are made of stainless steel, wood, plastic and tofu, among other things. There is a line of checkout counters 800 yards long, all staffed.

Three months 

The 800 yards of fully staffed checkout counters has shrunk to six open, the rest closed.

One Year 

Realizing that people only need so many widgets and that market share is no longer increasing, WidgetWorld adds a toy aisle.

Two Years 

The pink and plaid widgets, as well as those made of tofu and belly button lint, are not moving as fast as some of the toys, so they are quietly discontinued. The toy aisle is expanded and a housewares aisle is added. Sales improve but the customers who want pink and plaid widgets, as well as those made of tofu and belly button lint, leave. They are not missed.

Five Years 

WidgetWorld now sells toys, housewares, clothing, shoes, and has a pharmacy and optician. Only the most generic and best selling widgets are now sold. There are still only six open checkouts but the full 800 yards of checkout counters are still there for visual effect. Meanwhile, customers often wonder why more checkouts aren't opened up to handle the lines.

Eight Years 

Lines are less of a problem as customers leave for stores with better selection and service. Customers who want widgets don't come here any more because the selection of widgets is no longer better than most other stores, and customers who want other things shop at places closer to home. The suits decide that diversification is the key and reduce the widgets to a single aisle, while adding consumer electronics, cameras, an espresso bar and an acupuncture clinic.

Ten Years 

WidgetWorld, now a complete department store with everything imaginable, including even a few widgets packed in bubble packs, continues to spiral into the ground while the managers and stockholders wonder what went wrong. Meanwhile 666-BeastKo, with 1200 yards of checkout counters, five square miles of floor space, an indoor landing strip and its own currency, time zone and passports, opens across town. WidgetWorld goes out of business. Its managers, the local press, and consumer advocates blame the failure on the growth of mega-stores that crush and undercut smaller competitors.

Bottom Line

My bottom line is that a business has what I need when I need it. Their bottom line doesn't count. They're in business to serve me, not the other way around, and if they can't or won't serve me, I see no reason to help them stay in business. If you don't satisfy my bottom line, you don't get to have a bottom line yourself.

"We Can't Compete Against Low Prices"

Can't? Or Won't? Every single store that goes out of business because of a super-chain had a chance to become that kind of store themselves.

More Red Flags

Wider Aisles

Lots of customers prefer wide aisles. They allow more room for maneuvering carts, and present a more open, less claustrophobic appearance.

Me? More aisle space tells me you're stocking less stuff. Every time I go to your store and you don't have what I need is one less reason I have to come back again.

Going Upscale

I don't care in the least if you cater to people who want dog collars by Cartier. Just as long as I can get a generic dog collar. So stock a respected if pricy brand of tools, like BuyStuffCo is now doing, if that floats your boat. But if their Philips screwdrivers are $5, and I can get a generic over at HumungousCo for 88 cents, well, I hope you get enough buyers for those screwdrivers to match the six who buy them at HumungousCo.

Rearranging the Store

Sometimes it makes sense to rearrange your floor plan. Maybe your analysis of traffic shows that lots of customers are tramping to opposite ends of the store to get related items that should logically be stocked together.

But whenever I see this going on, I wonder:

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Created 8 November, 2002, Last Update 02 June, 2010

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