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January 29, 2009

The Marginalized will be Squeezed Out

No matter how you look at it, these are tough times for retailers. High-priced and low-priced retailers have been thrown off-balance from the intense category five strength winds of this economic downturn.

It has been reported nearly 150,000 retail stores ceased operations in 2008. Projections say 78,000 retail stores will be shuttered in the first-half of 2009. Yikes.

To withstand these torrential winds, retailers are cutting costs by laying off employees, closing locations, and pruning any expense not directly related to sustaining business life.

Many retailers are on life-support, hoping for a swift uptick in consumer confidence to revive the health of their company. Some brands will not survive and some brands that will survive, may look and act totally different from what they once were. Unfortunately, some brands have already been declared dead.


All of these brands have either disappeared, or are in the process of disappearing from today’s retail landscape.

To help bring understanding to this mess, I'm reminded of business wisdom from Peter Drucker

A Business that Fails to Lead Will Become Marginalized

Genuine market leaders, according to Drucker, must achieve their leadership results in an area that is meaningful to a customer or market. Such as, leadership in product development, leadership in customer service, leadership in distribution, or leadership in bringing ideas to market faster.

Achieving a leadership position is imperative for a business to stave off becoming marginalized or commoditized.

Drucker argues a business “… may seem to be a leader, may supply a large share of the market, may have the full weight of momentum, history, and tradition behind it. But the marginal is incapable of survival in the long run, let alone of producing profits. It lives on borrowed time. It exists on sufferance and through the inertia of others. Sooner or later, whenever boom conditions abate, it will be squeezed out.”

I love this thinking: Marginalized companies live on borrowed time and live through the inertia of others. When the economic winds change, the marginalized will be squeezed out.

The brands featured above share something in common, they all became marginalized in the marketplace and as a result, have been squeezed out.

The warning signs of becoming marginalized are clear:

When a business becomes an afterthought, not a forethoughtit becomes marginalized.

When a business fails to be included in a consumer’s consideration setit becomes marginalized.

When a business is viewed as dispensable, not indispensableit becomes marginalized.

When a business loses its uniquenessit becomes marginalized.

When a business no longer mattersit becomes marginalized.

When you, as a customer, would not miss the brand if it went out-of-businessit becomes marginalized.

The takeaway from all this is complicated: If a business cannot claim a leadership position, then it is either too small to meaningfully compete or too big to effectively compete. Failing to lead results in becoming marginalized. A marginalized company lives on borrowed time.

And time has run out for marginalized retailers like Circuit City, CompUSA, Mervyns, Bombay Company, etc.


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Great topic. Circuit City had a lot of the same flaws as CompUSA. The one thing all the brands you mentioned above had in common was that they were not offering a unique value proposition. Not one of them had anything you couldn't find elsewhere, and not one of them had terribly good customer service.

I wrote about CompUSA's final destination a while back here.

Bingo Pinny, they all became marginalized because they didn't do anything meaningfully different.

So the economy going south has acted as the "tipping point" for all marginalized businesses in all sectors that have been propped up by artificial means over the last few years.

Then this isn't a recession as much as it is a recalibration of everything we thought we knew about business - and life.

Great stuff John.

Indeed Jeffrey ... business priorities and life priorities change during a down economy. We are forced to question what we thought to be true when a recession comes. Recalibration is right.

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