The signs are the signs

Fire sales as a surefire sign that a business battle is being lost.

Fire sales as a surefire sign that a business battle is being lost.

When it comes to spotting business trends, “The writing’s on the wall.”

Holden Beach, a small town in Brunswick County on the North Carolina shore, was home to two small hardware stores, including a local True Value. Both were competing with the much larger Home Depot and Lowe’s stores located about 20 minutes away in the “booming” big town of Shallotte.

About four months ago, the True Value store reorganized its floor space, shrinking the hardware floor space by 50 percent and opening a consignment store in the other half. As soon as I saw that, my immediate reaction was, “That’s too bad – they are going out of business.”

Sure enough, a “going out of business” sign now hangs on the storefront and the store is liquidating inventory. Similarly, the True Value in Durham, North Carolina, has rented space to a pharmacy. It’s only a matter of time before they go under, just as the Holden Beach location did.

Knowing when you have won the war is pretty important: It tells you when you can afford to take your foot off of the pedal. In my book “Compete Smarter, Not Harder” I tell the story of how Blockbuster used the strategy of “stocking deep” – having enough of the current titles on hand so that you could always get the most recent title – to gain early dominance of the video rental business. The local “Mom and Pop” video retailers couldn’t afford to match such a strategy. Wayne Huizenga, CEO of the firm at the time, said Blockbuster knew it had won the war versus local competitors the minute the “Mom and Pop” stores put up the “2-for-1” signs on their doors.

The telltale sign of a company in trouble is the need to invest a shrinking core into new markets.Bill Putsis
The signs are incredibly easy to spot when you know what to look for. For example, The Wall Street Journal wrote about Barnes & Noble’s “mystery of vanishing sales,” where smaller and smaller portions of sales at the company’s brick and mortar stores are for books. Toys, games, e-readers and novelties make up larger and larger portions of its sales.

Overall, Barnes & Noble generated $6.84 billion in revenue in 2013, with $4.56 billion coming from its retail stores – down from $4.85 billion in 2012.

This is a telltale sign of things to come. Barnes & Noble won’t exist in its current state for long, just like the “Mom-and-Pop” book retailers and larger stores like Borders that came before it. Add to this the fact that Barnes & Noble’s CEO resigned in July 2013 – in part because of problems with its Nook operations – and you have a recipe for failure moving forward.

The lesson here isn’t the need for companies to move away from their core as industries and sectors evolve – it’s that successful companies use strength in their core to invest in new businesses.

As former GE chairman and CEO Jack Welch once said, “Good leaders have a way of seeing around the corner.” The telltale sign of a company in trouble is the need to invest a shrinking core into new markets. The number of firms where this predicts failure is almost endless – Borders, Kodak, Dell, Blackberry and now Barnes & Noble – while the successes – such as IBM and Xerox – are considerably fewer.

If you’re caught in a business with a shrinking core and a need to transform the business away from it, you’re fighting an uphill battle. Fire sales at the core are one surefire sign that the battle is being lost! 

It’s easy to see the writing on the wall, for the signs are the signs.