Friday, January 16, 2009

Darwinism in the Business World

In this day and age- we've become very desensitized to the news of retailers going down. Last night, however, when the newswire came accross my blackberry it triggered a sense of respect in me:

"Retailer Circuit City to Liquidate -Consumer-Electronics Pioneer Closing; 34,000 Workers Will Lose Jobs"

Now don't get me wrong, It wasn't a full out love affair with the retailer. Speaking as a consumer, my trips into many of their stores over the years where wrought with dissapointment. Poor customer service, poorly trained sales employees and bad retailing -period. Their stores always seemed to be arranged in a haphazardly fashion and product assortment was mediocre at best. A true 'also ran' retailer weakly trying to compete in a crowded market. Ultimately, to get their bite of the pie in a booming economy.

What caught my attention the most about the demise of this 60 year old appliance & electronics retailer is that their acting CEO James Marcum looked for an out on his own. They sought to 'reorg' by seeking buyers for the chain or the name. Due to tight financing avenues in our ill economy their opportunities dried up. In the end, when up against the deadline they placed their cards face down on the table and folded. Now, I'm not insensitive to the plight of the 30,000 plus employees effected by this. You have to have respect for their management's resolve in seeking a way out of the mess that previous poor leadership created.

Yes, poor leadership. After all, as the second largest electronics retailer in the U.S, they did very little right to keep that spot. In 2007, they fired over 3,400 experienced salespeople in efforts to curb high payroll costs. They were replaced with poorly trained, lesser experienced staff that furthered their spiral. Their (then) CEO Phillip Schoonover was rewarded for his fiscal prowess. Competing in an age where market differentiation is critical,They failed to do just that- differentiate. They were complacent with their position, while Best Buy (their closest competitor) sought to differentiate themselves on customer service. Budget retailers such as Walmart cut into their market share by focusing on price. The same was true for warehouse stores such as Costco and Sam's Club. Office Supply retailers Office Depot, Office Max and Staples- furthered the bleeding by offering deals on flat panel TVs. Big ticket items that were loss leaders for many electronics retailers- but they served to attract buyers that would purchase other higher profit margin items such as cables and DVDs. Circuit City just idled by as the 'me too' retailer with no significant niche of their own. By the holiday shopping season of 2007, the 'red ink' was everywhere. It became an inevitable issue. Failure was eminent- it was just a matter of when. In November 2008 in the midst of a beaten economy, they went up gasping for air for the last time as they entered bankruptcy protection and announced the closing of 1/4 of their stores nationwide. The writing was on the wall.

So now, almost thirty days after Saint Nick made his annual gift run, comes the announcement of their closing. 30K plus more jobs to add to the unemployment ranks. But all of this is not what added to my sense of respect for this retailer and their interim management team. As I read all of this, I had a sudden sense of deja vu. You see, just over a month ago- the American public was subjected to a huge violin concerto courtesy of the CEOs of the Big Three Auto makers as they stood in front of the Senate finance committee and told their tale of why they needed a bailout.

The ultimate 'sales job' on our illustrious Senate. No where in their tale of woes did they accept responsibility for their failure to differentiate themselves in the ultra competitive automobile industry. No where in their soap drama did they accept that both management and UAW employees were responsible for killing the 'golden goose' by accepting to make concessions that would reign in costs. No where in their melodrama did they admit failing to think progressively and invest in R&D for the future. A future free of our interdependance on oil. Instead, they dressed their story of the thousands that would be effected by their eventual demise in a 'suit of blame'. Blame on the declining credit markets. Blame on the high cost of oil. Never stopping to explain that the 'chicken was there' long before 'the egg' of economic ills and the challenging series of events.

They drove their own business into the ground much like the management team at Circuit City. My respect for CC comes from the premise that at that at no time did they sit back and ask for bailouts. There is some dignity in that. They accepted their failure as self-inflicted. You can compare and contrast: 'But Lou- you see there are so many jobs at stake'. 34,000 is not a paltry number I say. 'But Lou- there are so many more factors in play with the automobile industry'. As there are with retailers. It's dog eat dog. You see business is not as fickle as those who fail paint it out to be. It is pretty basic. 1. Build a product. 2. Select an area to focus on that will be different from your competition. 3. Manage your overhead costs and put initiatives in play to drive sales (profitability). 4. When your profitability improves, review, review and review what got you there. 5. Identify where you want to go to grow your business and pursue it with a series of steps that will build you up to your goals. A cycle that is constantly regenerating itself.

While Darwin's theory of natural selection more aptly applies to the animal kingdom. Simply put, the strong live and the weak die as everything lives out it's purpose in life. It serves as a sort of balance in the animal kingdom. It's application in the business world is never more clear than in the times we live in now. If we can only get our government leaders to understand this most basic of principles, so they can stop pumping money into the dinosaurs known as the 'Big 3'. Our leaders should require that the Big 3 innovate, contain costs and be architects of their own reconstruction. Tough decisions? I know. Why not let nature take its course as even in business there is such a thing as 'the food chain'.

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