Sixty percent of retailers with at least two years of negative comps turn them positive.
Two years of deep same-store sales declines can easily feel like a death sentence for most retailers. However, the data suggests it is indeed far from that.
We analyzed all specialty retailers with sufficient public data over the last 20 years—nearly 70 retailers—and found that the majority of retailers who substantially underperformed the market ended up turning their comps positive in relatively short order.
First, sustained poor performance is more common than many would think. Eighty-eight percent of the retailers we studied had at least one year of double-digit negative comps. And 47% of our set followed that bad year with another negative one.
But all hope is not lost for this set. In fact, we found that 51% of those retailers averaged positive comps in the two years after their slump. And 60% of the set had turned positive within five years.
This analysis has been adjusted for changes in personal consumption expenditures, so we were able to distinguish between retailers struggling from individual decisions and those struggling as a result of macroeconomic factors.
We found that overcoming such a significant slump is made more challenging by four factors:
1. Tarnished brand. Once-desired brands can lose advocacy or cachet as a result of changing trends or a loss of quality control. Examples include Juicy Couture and TGI Friday’s.
2. Rapidly increasing market competitiveness. The popularity of a given category encourages a sea change in the number of brands and retailers playing in it, as well as e-commerce influences like Amazon keeping prices relatively low. Retailers like Aéropostale and Levi’s have faced this challenge.
3. Secular shifts or a changing industry. Companies run into this problem when consumers no longer want their products. Some, like Radio Shack and Barnes & Noble, have been able to branch out into adjacent categories to stay afloat.
4. Operational missteps. Risky management decisions with lasting consequences can do as much damage as any macro trend. Sears and JC Penney are both currently experiencing headwinds created by past decisions.
None of these challenges alone means that a brand is beyond hope. They simply mean that reinvigorating the brand will require major strategic changes.
The following case studies help illustrate some of these strategic changes.
2003–2007: J. Crew
Issue: J. Crew experienced -16% comps in 2001 and -11% in 2002. These results were symptomatic of significant internal strife and turnover, including three CEOs in five years, and poor merchandising and real estate decisions. At the same time, its competitive landscape only intensified.
Solution: Starting with significant management changes, including hiring Mickey Drexler as CEO, J. Crew sought to instill a design-driven focus throughout the organization. It also revamped its products to include more color and added new higher-end pieces, categories and a bridal collection. J. Crew also upped its product flow and improved the store experience.
Results: J. Crew turned in 16% same-store sales growth (SSSG) in 2004 and 13% in 2005, plus a 17% increase in total revenues to $804 million and a gross margin increase of 36.3%. It was taken public in 2006 with a market capitalization of $1.1 billion and has since spawned several successful new businesses, including Madewell and crewcuts.
2006–2011: Kate Spade
Issue: Kate Spade faced double-digit comp