COVID causing bankruptcy or bad business planning?

QUICK READ: The U.S. is over retailed with far too many restaurants and strip malls. As businesses file for bankruptcy we should remember that some are failing because of poor business planning and failed leadership.

The news this weekend was all about the bankruptcy filing of Hertz. What was left out is the fact that they have had a revolving door of CEO’s and have lost a lot of money over the last three years. The failures of Hertz and the others have more to do with their own arrogant inertia and inability to recognize the fast-changing trends and a refusal to adapt their business models accordingly.

According to Forbes “some of Hertz’s problems have been self-inflicted. The company, which was founded in 1918, recently went through a number of restructures and four CEOs have gone through the turnstile. A private equity firm heaped a whole lot of debt on Hertz, which didn’t help matters”.

Of course some small, family-owned retailers are struggling as well but there is no way they could have foreseen the current business environment but in 2019, retailers had announced 2,187 store closures, Ascena Retail, Charlotte Russe, Gymboree, and J.C. Penney locations among them.

The Atlantic makes a bold prediction saying “we are entering a new evolutionary stage of retail, in which big companies will get bigger, many mom-and-pop dreams will burst, chains will proliferate and flatten the idiosyncrasies of many neighborhoods, more economic activity will flow into e-commerce, and restaurants will undergo a transformation, unlike anything the industry has experienced since Prohibition”.

The United States is vastly over-retailed, with estimates on retail space ranging from 23.5 to 46.6 square feet per person. This compares to just 2.4 square feet per person in Germany and 1.5 square feet per person in Mexico. Retail growth, financed by debt, has simply become overleveraged and unsustainable. The current store closures are a natural contraction of retail sprawl.

The problem is that American’s are lazy. Why drive 5 miles to go shopping when you can drive 2? It seems there is a fast-food restaurant on ever corner now with some chains opening stores within close proximity to others.

What about the airlines? Their business plan can’t withstand ANY stress testing. They need full planes on almost all flights to make payments for new planes. In some markets you can chose between three or four different airlines to the same destination.

Will American consumers go back to their free spending ways? I believe to a certain extent, yes. I am however concerned about the high levels of consumer debt. When a consumer can buy a car with a 72 month interest. free loan that will be worth than the vehicle they just purchased something is wrong.

A lot of consumers have learned that they need to save money in case of an emergency. The only way they will splurge is if they feel safe which means a hot job market with rising wages. That may be a long way off.

About richmeyer

Rich is a passionate marketer who is able to quickly understand what turns a prospect into a customer. He challenges the status quo and always asks "what can we do better"? He knows how to take analytics and turn them into opportunities and he is a great communicator.

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