How J.C. Penney and Sears Could Have Steered Clear of the Slope of Death
As if the recent holiday season in the wake of the payroll tax increase and government shutdown hasn't already made 2014 a disappointment for retail, then the rest of the year may require a stiff upper lip in girding for the rest of the iceberg.
Severe weather is reducing in-store foot traffic, while the red flag over data privacy is threatening to further chill a selective, discount-chasing public already bored with the experience of shopping at a physical store. On Wall Street, earlier cautious optimism has given way to pessimism — and with good reason. A sectorwide sales slump is looming.
Teen retailer Abercrombie & Fitch is out of favor with its core demographic; American Eagle has ousted its underdelivering CEO; and RadioShack is betting a cosmetic makeover can solve a fundamentally weakened business. Meanwhile, restaurant franchise Applebee's, bookseller Barnes & Noble, consumer electronics multinational retailer Best Buy and casual dining chain Olive Garden continue to struggle.
In spite of the cloud hanging over the whole of the retail sector in early 2014, J.C. Penney and Sears deserve special attention. JCP and Sears are illustrative of what some may call the "Slope of Death" in business distress — a prolonged decline that can often end a company if an appropriate restructuring plan isn't implemented and carried out.
What the Slope of Death is not is irreversible or unstoppable. Frequently, responding to the smoke before the fire can keep a company out of mortal danger. Avoiding the Slope of Death in the first place is the objective, and here the backstory of both J.C. Penney and Sears offer a textbook guide of what not to do.
As a U.S. brand, Sears is iconic for its practicality, not to mention its success — until recently. The company began as a mail order catalog serving the turn of the century rural Midwest and went on to pioneer the concept of the "department store." However, a long period of diversification into nonretail would come back to haunt Sears.