5 Symptoms Of A Retail Zombie, From J. Crew To J.C. Penney (And None Are A Virus)

The Store Is Open, But Does It Have A Heartbeat?

That a number of retailers have filed for Chapter 11 bankruptcy protection and have permanently closed stores in the fallout of Covid-19 pandemic should surprise no one. Rather, it’s some of those merchants that are shuffling back to turn on the lights, persisting against the odds, that should astound consumers and the competition. We can learn from them.

For one thing, these merchants were struggling against poor health – or at the least revealing symptoms of impending poor health – well before the retail lockdown caused precipitous declines in consumer spending. J. Crew, J.C. Penney, Neiman Marcus and GNC, all of which filed for bankruptcy protection, struggled with one systemic issue, for example: They failed to keep up with their customers.

Now A Novel Virus Is Outing Retail’s Old Way Of Thinking

Evidence of the retail industry’s grave struggles predates the virus, so it is likely Covid-19 is just hastening an unavoidable fate for many. Remember? In 2019, more than 9,300 stores closed; in 2018, 5,700. And as of June 2020, more than 4,300 stores were expected to close before the pandemic.

These darkened windows now serve as reminders that too many retailers spent too much time looking within, when they should have been acting on what was happening outside.

And so the pandemic barreled into “old” retail’s world like a meteor. All those comparisons to dinosaurs are finally playing out.

A New Retail Will Emerge, But We Have To Learn From History

So we now have a nearly $4 trillion industry in flux, with storied (sometimes staid) national brands going at it against spritely startups, and it’s a heck of a battle. The bigger brands have experience, but their history is not necessarily helping them. Their past does, however, reveal activities and behaviors that have contributed to their weakened position.

Here are five signs of retailers that may be dying, yet may not know it.

Leverage equity-ectomy. Large debt can be a major issue for retailers struggling to turn around because the millions of dollars they spend servicing it could be used for significant investments from online capabilities to reinventing the store experience. GNC, for example, carried $1 billion in debt when it filed for Chapter 11 bankruptcy protection. While private equity players often acquire and turnaround poor performers, there is no question that at times their leveraged buyouts can also create crushing debt levels. Neiman Marcus and J. Crew both accumulated such debt stemming from leveraged-buyouts by private equity owners – J. Crew owed nearly $1.7 billion and Neiman, $5 billion, The New York Times
NYT
reports. Instead of paying millions of dollars to their owners over the years, these companies could have been investing in online operations and in-store or other customer-experience improvements.

Anchor-itis. The share of people who visited malls specifically to shop department stores fell to 20% in 2019, from 25% in 2018, according to a survey by UBS. It identified middle-income chains, including J.C. Penney, as especially vulnerable as more style-progressive, easier-to-shop fashion alternatives emerged. Adding restaurants and salon services in the department store (as some have done) may help bring shoppers in, but if the merchandise doesn’t hold up to the competition, they just serve as expensive window dressing.

Basket anemia. A telling measure of store performance is the average number of items sold per customer. These sales-per-customer reports help retailers identify their most frequent, loyal shoppers – and learn from them. They also help identify hiccups in activity or unwelcome trends, such as shrinking transaction sizes. Not all retailers share sales-per-customer data, but there are hints when it is on the decline, such as reduced foot traffic (as evidenced at Pier 1) and steep discounts.

Ailing employee morale. Tired, unsmiling or stressed workers spread feelings of dissatisfaction, while workers who are well-trained and -recognized fight for their companies. In May 2019, a year after Walmart
WMT
raised its hourly wages and invested in employee training and educational programs, it reported a 10% decline in employee turnover rates, its lowest in five years. Lowe’s
LOW
, meanwhile, recorded declining sales in the 2019 fourth quarter, when news reports documented spiraling employee morale. Lowe’s, which remained open during the pandemic lockdown, is enjoying stronger sales in 2020.

Weak digital bones. Any company that had been slow to incorporate digital retail is likely too weak to catch up. A few are managing a sprint, but that haste causes merchandising and operational oversights that contribute to a situation that will probably be doomed. Early symptoms of J. Crew’s downfall can be traced to its digital deficiency, which some attribute to former CEO Mickey Drexler’s lack of internet savvy. By not understanding the power of the internet, it’s surmised that he underestimated the newfound power of the consumer, who no longer waited to be told what to wear next season.

Ah, the nostalgia of relying on a next season.

For Some, There Will Be Life After Zombie-ism

Yes, some dying retailers will crawl back from the edge and walk among their rivals. What will that look like?

Short-term, it’s reasonable to expect more co-branded partnerships (older brands aligning with techy startups, for example) or niche brand spin-offs that target specific shopper segments. These strategies make sense, but will only work if retailers get the basics right, and offer:

• A merchandise assortment that builds foot traffic.
• A consumer value proposition that extends beyond price (such as a quality loyalty program, unique customer experiences and relevant personalized offers).
• A seamless buying experience that recognizes new customer expectations and personalized needs across all channels, physical and digital. Contactless purchasing technology is a good example.

Ironically, the recent openings after the forced lockdown of shopping malls and stores might now contribute to a bump in foot traffic, even among zombie retailers, as sheltered consumers seek “safe” environments in which to congregate. But the food court is not a store, and hanging out with friends does not keep the lights on.

Occasional purchases just serve as life support; retailers need regular, loyal shoppers to thrive.