My take: Why stores go out of business

July 4/11, 2016; Volume 30, Number 27

By Steven Feldman

I recently learned that Sports Authority is going out of business. The sporting goods chain, which operated more than 460 stores in 45 states at its peak, had been in business for nearly 30 years and existed in an industry that is by no means in decline. More and more people are doing more and spending more on outdoor activities.

So it leads me to ask myself: Why would Sports Authority be going out of business? And on a macro scale, why does any chain go out of business? After all, this industry has seen the likes of Color Tile, Sandler & Worth, Kaufman Carpets, Giant Carpet and countless other chains shut their doors.

I did a little research and became somewhat enlightened. Stores go out of business for varied, often-overlapping reasons, some of which are in the store’s control; some of which aren’t. Whether you wonder why your competitor’s front window displays a “Going out of business” sign or if you want to avoid the most common pitfalls, you may be surprised by how many things can cause a store to pack it in.

An article that recently appeared in the Houston Chronicle broke it down into four primary causes:

1. Physical causes. Physical characteristics such as location and interior and exterior design features can cause your store to fail. Common symptoms of a bad location include inadequate parking, less-than-desirable surroundings, confusing street layouts, little pedestrian traffic and lack of other retail outlets in the area. If your store’s exterior signage or window displays have a poor design, people may be less likely to set foot inside even if the location gets plenty of traffic. Poorly designed interiors can also contribute to a store’s demise. For example, if your store plays music at an annoying volume, potential customers may leave the building due to physical discomfort.
2. Economic causes. Stores sometimes go out of business as a direct result of economic causes, such as shifting demand or excessive overhead. Even if your store is thriving by industry standards, it may go out of business if its overhead is too high. Caution in management decisions can help you avoid excessive overhead, such as signing a lease for more rent than the business can afford or hiring more employees than necessary. Shifting demand can sink a store by causing a major drop in sales. For example, if your store is not diverse in the products or styles it sells, and what you sell loses popularity, your store may suffer a drop in sales and be unable to meet its overhead obligations. In illustration, those flooring stores that were slow to embrace the onslaught of hard surfaces in a meaningful way found themselves on the outside looking in.
3. Marketing causes. Marketing problems can cause a store to fail even if every other aspect of your operation is positive. Inadequate marketing can mean that you don’t do enough to promote your business, or that you don’t execute your marketing well enough or do not direct it at the right audience.
4. Differentiation causes. Many other causes exist for store failure, among them not enough differentiation. If you can’t tell me why your store is different, then it probably isn’t. If the market is saturated and your store doesn’t have a distinguishing feature—such as a different look, better selection, better service or better in-store experience—you will find yourself in trouble. It is imperative to differentiate your store from the competition; otherwise, it becomes a race to the bottom and you find yourself in the commodity game.