The past year, especially the holiday shopping season, was dreary for many merchants, but it wasn't bad enough to explain most of the tumult sweeping through retailing.
Even the hefty buyout debts that strap some retailers are frequently only a catalyst--rather than the underlying cause--of the skyrocketing number of bankruptcies, store closings and layoffs.
The industry is going through a survival-of-the-fittest shakeout that, analysts say, stems largely from a massive overbuilding of shopping centers during the late 1970s and 1980s. On top of that, retailers are now paying dearly for years of myopia.
Most retailers have automated slowly, failed to recruit top-notch talent and given short shrift to consumer research. Experts say that weak merchants also have let themselves nearly bleed to death before shutting money-losing stores.
Retailing is the last major industry rife with "management by the seat of the pants," contended Douglas J. Tigert, a professor of retail marketing at Babson College in Massachusetts.
Many of today's top executives "grew up in an era when it was easy to win," he said. "Now you've got to be the best to make money."
The consequences of past sins could be far-reaching. According to one study, merchants now accounting for half of the nation's retail sales will have been bought or shut down by the year 2000.
Consumers will be treated to a bounty of price wars as stores struggle to attract enough business to survive. But growth will fade in retailing employment--an entryway, albeit a low-paying one, into the work force for many unskilled people.
After climbing 3.7% annually since 1982, retailing employment inched up 1.1% in 1990 and actually declined in the second half of the year.
Moreover, the upheaval in retailing has begun rippling through other industries. Construction of shopping centers appears to be slowing. Banks are being stung by unpaid retailing loans. Newspaper advertising is shrinking.
And some small suppliers, including apparel firms, have gone broke after retailers slipped into bankruptcy without paying their bills.
Still, the retailing shakeout has a silver lining for merchants that have played it smart--in other words, the companies that have succeeded in keeping their balance sheets debt-free, in embracing labor-saving technology and in simply doing a good job of satisfying customers.
"Now is really the time to eliminate weak competitors and gain market share," said C. Scott Killips, a partner in the consulting firm Booz, Allen & Hamilton.
Killips predicted that strong companies will squeeze their rivals in coming years by stocking their stores amply while their cash-starved competitors' shelves are looking bare.
Also, he said, many of the healthy, aggressive companies will mark down prices sharply, often to levels where they can make money but their less-efficient competitors can't.
Killips has gone on temporary leave from Booz Allen to serve as chairman of 24 Hour Video, a Vancouver-based company that bills itself as the fifth-largest video rental chain in North America. And, at 24 Hour Video, Killips is practicing what he preaches: The company is trying to fill its racks with deeper supplies of new hit releases than its competitors can afford to stock.
The idea is to create a lasting impression among consumers that if you want to be sure to find a hot new release, 24 Hour Video is the place to go.
Meanwhile, Killips is trying to buy some of his struggling competitors, a relatively inexpensive way to expand quickly.
Far bigger retailers also like the current acquisition market. For instance, May Department Stores of St. Louis, the nation's No. 1 department store company, last month bought the Richmond, Va.-based chain Thalhimers from debt-heavy Carter Hawley Hale Stores of Los Angeles.
Analysts say that the likely winners and losers in the retailing shakeout are separated, in many cases, by how well they use computer technology.
Sears, Roebuck & Co. has been criticized for being slow to computerize and maintaining a bloated work force. Its operating expenses--principally payroll and real estate costs--are estimated to be 30% of annual revenues, possibly the highest in the industry.
To catch up with leaner competitors, Sears this month announced it would cut 3,500 full-time jobs and 17,500 part-time positions in the first half of this year--perhaps the biggest single employment cutback ever in retailing.
What has been keeping all of those supposedly excess workers busy? Old-fashioned work procedures. For example, it sometimes takes Sears stores 2 1/2 hours to unload a truckload of merchandise. That's largely because its employees log incoming items manually, using paper and pencil.
Now, however, computerized bar-code scanners are being introduced at the stores to record shipments. No more paper and pencil. The result: truck unloading is expected to become a 30-minute job.
