Important Lessons Small Businesses Can Learn from Recent Brick-and-Mortar Bankruptcies

Important Lessons Small Businesses Can Learn from Recent Brick-and-Mortar Bankruptcies


It seems like every day a new brick-and-mortar retailer is filing for bankruptcy every time you turn on the news. With once-popular brands like Toys “R” Us, The Bon Ton, Claire’s, Teavana and several others falling victim to difficult economic times and a surge in the popularity of online shopping, many small businesses fear becoming the next statistic in a never-ending stream of failed businesses.

While small businesses often face completely different challenges than those faced by multi-billion-dollar corporations, there are still plenty of lessons to be learned from the demise of these larger entities. Here are a few important lessons that all small business owners can take to heart.

Fix a Problem at First Sight

Very rarely does ignoring a problem make it go away. This is especially true in the business world. While many business owners recognize problems with their businesses long before they are forced to shutter their doors, they fail to take the appropriate action to solve the issue.

Let’s take RadioShack, for example. Once a thriving company, the business has not been relevant for a number of years. In 2014, the company went as far as making fun of its reputation of being stuck in the 1980s in the form of a Super Bowl commercial that cost them a lot of money. By then, it was way too late for the company to attempt to modernize, and the commercial did little other than make many confused consumers wonder why the company still mattered.

Instead of waiting so long to attempt to modernize, the company should have adjusted their strategy way back in 1987 when electronics giant Best Buy went public and again in 1997 when Amazon launched and began doing $20,000 in sales per week within just two months. With these two competitors quickly gaining traction in the marketplace, RadioShack should have immediately taken steps to change their strategy and remain a strong presence in the industry. Instead, they stuck to doing everything the same way and failed to meet needs that Best Buy and Amazon began fulfilling with ease. They made no real effort to adapt to meet the needs of the time until 2009 when they half-heartedly attempted to rebrand to “The Shack.”

The Lesson Quote

The lesson? Don’t wait until it’s too late to make changes. If you notice a problem with your business or see new competitors who are doing what you do better than you do it, adjust your strategy. Problems don’t go away on their own, and ignoring them is like digging your company’s own grave.

Maintain a Strong Online Presence

In today’s economy, a business cannot thrive without a strong online presence. More online purchases are being made than ever before, and some experts speculate that more money is being spent online than in brick-and-mortar stores and shopping malls. Several brick-and-mortar retailers that have recently filed bankruptcy cited the lack of a strong online presence as a major factor that led up to their ultimate bankruptcy filings. Gymboree, Payless and Toys “R” Us all lacked the online presence necessary to compete in today’s economy, and this was the primary factor that led to their downfall.

The general shift away from brick-and-mortar stores to online retailers has contributed to financial difficulties for many businesses. Retailers with substantial brick-and-mortar presences carry significantly higher expenses than Web-based companies. They are dependent on store traffic, and this has decreased significantly as many consumers have stopped visiting malls and shopping centers in favor of shopping online.

Retailers that have both brick-and-mortar stores and convenient e-commerce platforms continue to do well even amid the decline in mall shoppers. Zara, for example, has a strong e-commerce platform that supports international shopping in more than 30 languages. The company also allows consumers to receive periodic updates regarding new fashions via email.

One clever feature that has helped Zara survive while other retailers with less savvy e-commerce strategies fail is their free shipping offer. The company ships orders for free–if the buyer agrees to pick their unique package up in store. Zara also allows in-store returns for purchases made online. These offers drive consumers into physical stores and, when they arrive, they are likely to make additional purchases.

Get Online Quote

As the owner of a small business, your products or services need to be available where your customers want them. Consumers turn to the Internet more often than anywhere else when they are shopping for goods and services. If your business does not have a strong online presence and e-commerce fulfillment system, it is unlikely to be able to compete with your competitors that do.

Create Plans that Can Be Broken

Business PlanEvery business needs a good business plan. It provides a strong foundation and helps you build your company. It doesn’t have to be set in stone, though. Instead of creating a rigid plan and always sticking to it year after year, develop a plan that provides room for flexibility.

As a business owner, it is easy to become so immersed in your business that you fail to notice your competitors and market conditions. Knowing your competition is vital, but many business owners get so caught up in small details and day-to-day operations that they fail to see the bigger picture. Assess your competition regularly, and pay close attention to the market as a whole. If you notice any major changes, be willing to adjust your plan in a manner that allows your business to remain competitive. By better understanding how your business fits into the industry as a whole and how your competitors have found success, you can better create flexible plans and adjust them as needed.

Offer Something Your Competitors Don’t

If your business doesn’t offer anything that your competitors don’t, what would drive consumers to choose you rather than someone else? Take large retailers like Sears and Kmart, for example. These businesses offer everything from household supplies and clothing to large appliances. They sold just about anything that anyone could possibly need, yet they are still closing more and more locations.

Once America’s leading retailer, Sears has fallen to the wayside as consumers choose lower-priced options like Walmart or do their shopping online. Walmart uses cutting-edge technology to manage everything from logistics to shelf space, and this technology is largely what allows them to offer the lower prices that American consumers have come to demand. And the convenience of ordering from online retailers like Amazon has left many large department stores in the dust.

Sears and Kmart failed to offer anything new to keep their customers coming back. While they provided the products consumers needed, this alone did not sway consumers’ opinions to choose them rather than their competitors. Instead, they stuck with their traditional marketing methods and original plan while customers left to find something better.

Be Unique Quote

There is a lot of competition in just about every industry imaginable. As a result, it’s extremely difficult for small business owners to find ways to set themselves apart and compete. By providing a product or service that other companies don’t, or by getting the job done in a unique way that is beneficial to consumers, you can avoid common pitfalls that have spelled disaster for many larger corporations.

Remember that Bigger Isn’t Always Better

Another issue that is common in recent bankruptcy filings is the need to reduce the brick-and-mortar footprint. Payless, for example, operated more than 3,500 stores in North America and almost 400 stores in Latin America when the company filed its bankruptcy petition. Eliminating approximately 800 stores is a big part of the company’s restructuring efforts.

Too many brick-and-mortar stores and a limited online presence also contributed to the bankruptcy of Rue21. The company emerged from the bankruptcy with approximately 420 fewer stores and plans to better its merchandising strategy and e-commerce fulfillment. Gymboree has also closed several hundred stores in an effort to reduce its brick-and-mortar footprint and cut down on operating costs.

While expanding your business and opening up additional locations may seem like a good idea, make absolutely certain that doing so is feasible. Additional locations come with additional expenses, and many business owners find that the financial burden is more than they can handle. This is especially true when small businesses try to expand too quickly. Expansion can be a good thing but only if your business financially supports it.

Don’t Focus Solely on Price

Unless you run a discount business, focusing solely on price probably is not the best marketing strategy. This is especially true if you are unable to match or beat the prices available through online giants like Amazon or big box stores like Walmart.

Toys “R” Us used price as a key marketing point. Unfortunately, Toys “R” Us is not a discounter, so using price as the main part of their marketing program fell flat. When price is your main talking point and your prices aren’t the lowest, you quickly lose credibility in the eyes of your audience.

Price vs Value

Instead of only talking about price, focus on value. Talk about what’s hot and what products will be hitting the market soon. Discuss your best-selling products and services. Promote popular brands, new brands, etc. Unless your price is the absolute best in the industry, you need to market based on factors other than the amount that you charge. Always point out the benefits of choosing your business, product, service, etc. This shows consumers the value of your business rather than just the price.

Remember the Importance of Customer Experience

Even with the rise in popularity of online shopping, there is one area in which e-retailers cannot compete–customer experience. While sites like Amazon provide a user-friendly experience by making shopping fast, easy and convenient, they cannot compete with the experience that many customers have come to enjoy when shopping in certain brick-and-mortar stores.

Happy shopping woman

While Amazon was started as a destination for readers, the American Booksellers Association reports that their membership has grown steadily over the past seven years. In fact, their number of member bookstores increased by 40% in 2017. While both physical and digital books are often cheaper on Amazon, independent bookstores are thriving (even when major retailers like Borders have failed). But why?

The answer lies in the customer experience. An online retailer simply cannot replicate the experience of browsing a bookstore and perusing the pages of a new book. The small samples that the online mega-retailers provide don’t match the experience of sitting in a comfy chair and flipping through the pages. Independent bookstores have a unique atmosphere, a unique smell and a unique environment that simply doesn’t exist in the online world.

As a business owner, creating a unique and enjoyable customer experience sets you apart from your competition–both locally and online. If you can create an experience that your customers enjoy, they will come back to you time and time again, even if there is a cheaper alternative. Even something as simple as unique custom packaging could set you apart from your competition by creating a pleasant customer experience.

Negotiate with Creditors Prior to Filing for Bankruptcy

In some situations, filing for bankruptcy cannot be avoided. If that time comes in your business, the process typically goes much quicker if the retailer already has a creditor-supported, pre-negotiated plan in place when filing. Payless, for example, filed Chapter 11 bankruptcy petitions in April of 2017 with a pre-negotiated plan in place in an effort to make it through the process as quickly as possible. The company emerged in August 2017–just four months after filing.

Gymboree also moved through the bankruptcy process quickly thanks to a pre-negotiated plan. The company filed for bankruptcy on June 12, 2017, and their Chapter 11 Plan of Reorganization became effective on September 29, 2017.

Going through bankruptcy is expensive and, the longer it takes, the more it will cost your company. Negotiating with your creditors and coming up with a plan prior to filing can drastically reduce the length of the proceedings and give you a greater deal of control over what happens.

Moving Forward as a Small Business Owner

Seeing major corporations shutter their doors due to bankruptcy can be frightening for many small business owners. Rather than falling victim to the same failures, though, you can learn from their mistakes and build a business that will survive even in a constantly evolving marketplace.


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