Retail failure occurs when retailers
cease trading activities and exit their market, as a result of either micro or
macro environmental factors or both (Burt et al, 2003). An example of retail
failure is the demise and bankruptcy of BHS, which has been one of the most
contentious and conspicuous retail failures in recent years (Meek, 2016). The
iconic British brand was formed in 1928, set up to compete with the low-cost
competitor Woolworths. However, following years of declining sales and revenue
BHS was placed into administration in June 2016 (Rankin and Fletcher, 2016).
BHS’s collapse resulted in the loss of 11,000 jobs and the closure of 164 high
street stores. This complex failure, is largely blamed on the poor and reckless
leadership of their previous owners (Quinn, 2016; Vandevelde, 2016). This paper
critically evaluates the main causes of BHS’s failure, supported by quotes from
media outlets and underpinned by relevant theories.
The development of online services is crucial for all retailers, as the internet is argued to be the most important retail innovation in recent times (Levy et al, 2004). BHS failed to develop a competent online offering, “they were too slow and their ecommerce offering was poor. John Lewis and House of Fraser reaped the rewards on ‘click and collect’ while BHS struggled to catch up” (ref). BHS’ late entry into the online market meant they fell behind competitors, however once they responded, the online offering was outdated and service was inadequate. The lack of investment in the online experience reflected their unfashionable brand image, “a quick look online will tell you that BHS apps score just 3.4 stars on Google Play and 2.5 on iTunes, while recent reviews are generally unfavourable” (Couttigane, 2016). BHS failed to understand the significance of capturing the demand for integrated multi-channel online shopping, in turn losing many shoppers.
Lack of investment and creativity meant
that the department stores remained looking dull, degenerated and
uninteresting, ““the majority of BHS Stores are not fun, bright or
dynamic; overall they are not a pleasant shopping environment” (LearnMarketing.net,
2016). The tired and neglected image the store portrayed was detrimental to the
brand, as consumer’s retail experiences in-store can impact their perceptions
of store value and brand worth (Pugh et al., 2002). Furthermore, BHS failed to
keep up with shopper demands (Quinn, 2016), neglecting the consumer’s desire
for more personalised shopping
experiences in the form of concessions, unlike their main competitors Debenhams
and House of Fraser.
BHS failed to differentiate themselves from
their main competitors, ” BHS
failed because it lacked meaning and purpose” (Tate, 2016), therefore the
retailer did not have clear and recognisable brand identity and purpose. A
unique selling point is crucial so that a firm can gain and sustain a
competitive advantage (Levitt, 1986). Moreover, “what it sold was neither
unique nor well-priced” (Quinn, 2016), both price and product are fundamental
components of McCarthy’s (1960) marketing mix, price signals product quality
and worth, while the product should reflect consumer tastes and preferences.
One of the key contributing factor to
BHS’ downfall was its poor leadership, “leadership failures and personal greed
led to collapse of BHS” (ParliamentUK, 2016). BHS was guilty of reckless
mismanagement, lead by their greedy and irresponsible owner Sir Phillip Green.
Incessantly poor financial management and high cost structures lead to huge
company debts and a pensions deficit of £571 million (Fuller, 2016). Poor management of high cost structures can
cause competitive disadvantage, which largely contributed to the failure (Slatter
and Lovett, 1999).
BHS faced increasing competition from all angles, “from Tesco and the big supermarket chains to out-of-town retailers such as Ikea, to rival department stores such as John Lewis, huge swathes of the retail firmament began to eat BHS’s lunch” (Quinn, 2016). Due to its lack of USP and the increased rivalry of competition, BHS’s offering seemed even less valuable and it was unable to compete with the likes of supermarkets which offered a wide product range, and convenience through guaranteed parking (Bellini, 2011).
Therefore, the main causes of BHS’s failure were poor e-commerce, store design, brand image and management, and increased competition. These are further explained by relevant theories, which are outlined in the following section.
All theories evaluated are based on the ‘voluntarist
perspective’, positioning retail failure to be determined mainly by internal
factors within an organisation, that stem from management’s decision-making (Cameron
et al., 1998). The theories of narcissism, e-tailing and the big middle are
discussed.
Retail
failure is often associated with an organisation’s internal management team or
simply one senior figure with a dominant style of leadership who controls
decision-making (Mellahi
& Wilkinson, 2004). Organisation
studies literature often pins failure on management’s lack of vision or the
lack of willingness to make positive changes in order to halt performance
decline generated by external factors (Mellahi et al., 2002). This can be explained by narcissistic
behaviour, narcissistic leaders make self-centred decisions, ignoring outside
advice, therefore increasing the risk of retail failure (Macoby, 2000). In
addition, managers who display narcissistic behaviour, often influence other
factors that contribute to organisational failure, these include failure to
adapt and alter existing ways of working (Bateman and Zeithaml, 1989) and
management’s inability to perceive their own strengths and weaknesses, or
predict customers’ demands or competitor movements (Zajac and Bazerman, 1991).
Narcissistic
behaviour often stems from previous success which makes managers susceptible to
failure (Whetten, 1980). Prior
achievements can lead to over-confidence and egotism (Miller, 1990), with some
writers arguing that ‘success breeds failure’, and ‘further failure breeds
failure’ (Mellahi & Willkinson, 2002; Starbuck et al., 1978). This is
especially the case when business conditions change, and narcissistic leaders segregate
themselves, take unnecessary risks and make irrational decisions to the
detriment of the business (Holsti, 1978; Macoby 2000). Narcissism is also often
caused by a needless focus on historical achievements (Mellahi et al., 2002),
and in a crisis situation, managers will behave with rigidity (Staw et al.,
1981), rather than countering potential environmental threats and utilising
resources to seize new opportunities (Argenti, 1976). However, there is some
criticism of the theory, with industrial organisation literature arguing that
organisational failure is an inherent market occurrence caused by external
circumstances (Balderston, 1972).
Technological
advancements in recent years, such as the widespread availability of the
internet and the development of Web 2.0 technologies, a new cohort of online
applications designed for consumer collaboration (Beer and Burrows, 2007), have
transformed consumption trends. The rise of online technologies has altered
existing retail traditions, and online
retailing has redefined the retail landscape and shows no signs of slowing down
(Rao, 1999).
Electronic
retailing (e-tailing) is a method of selling goods and services through the
internet, over recent years it has rivalled and in some sectors overtaken
traditional retailing channels (Wang et al., 2002). E-tailing has facilitated
the creation of multi-channel organisations (Wrigley et al., 2002), who sell
online and in-store, for these firms it is important that the different
platforms are integrated, reflecting a consistent and coherent brand image
(Gallaugher, 1999).
The
use of Omni-channel technologies such as Smartphone shopping apps, allows the
retailer to engage with the customer well past the traditional in-store
purchasing stage, internet technology provides the shopper with continuous
brand interaction and facilitates the formation of a customer-brand
relationship (Wang et al, 2002). For example, the rapid development in Web 2.0
technologies, and their increasing involvement in everyday life (Lenhart and
Madden, 2005), means consumers can easily create personal online accounts with
the retailer. This enables the collection of consumer data and insight for the
retailer, which if done correctly allows them to tailor the shopping experience
for individuals (Burke, 1996).
Literature
suggests that although e-tailing holds both advantages and disadvantages for
firms, costs are seemingly outweighed by benefits, which include lower overhead
fixed costs and streamlined operations processes (Piris et al., 2004). It is also argued that the growth of
e-tailing has in-turn modernised information exchanges, leading to more
efficient transactions that save the retailer time and money (Peterson et al.,
1994). In terms of customer benefits, e-tailing is highly convenient and gives
shoppers access to more information allowing them to compare prices and
products instantly (Cross and Smith, 1995).
However,
other perspectives in the literature suggest that e-tailing has stemmed from
radical industry change (Dosi et al., 1997), and such sweeping change can risk
exposing a firm to retail failure if unprepared (Williams, 2009). Furthermore,
e-tailing on a large scale may only be reserved for larger retailers, limiting
the participation of smaller businesses, because the set up and maintenance
costs of website design and infrastructures can be costly (Wang et al., 2002). However,
Chandra and Sunitha (2012) reiterate that unless traditional retailers adapt
their business models and embrace the online movement, they risk retail
failure.
The
‘big middle’ is the area of the market in which the biggest retailers compete
in the long run, due to it holding the largest number of potential customers (Levy
et al., 2005). The theory is explained through a model (found in Appendix 1)
that illustrates the strategic movements of retail organisations, explaining
market entry and firm location (Manfred and Mantrala, 2006). Although the ‘big
middle’ is a static theory where only the firm’s rivals change, it is argued to
be underpinned by a cyclical evolutionary pattern (Williams, 2009).
The
theory can often provide justification and reasoning for the success or failure
of retailers (Gorton et al., 2009).
The
model identifies four possible segments within the market where a retailer may
be positioned, big middle, innovative, low price and in-trouble (Levy et al.,
2005). Retailers first must ascertain themselves as either innovators or
leaders in low-price, yet then their goal is to maintain their position in the
big middle as this is the most competitive segment of the market, offering the
opportunity for firms to grow their revenues, economies of scale and thus gain
higher profits (Brown et al., 2005). However, for a retailer to be successful
in this segment it must continually deliver value (Reynolds et al., 2007), only
achieving this by frequently adapting their business model to suit changing
consumer preferences in an active environment (D’Aveni and MacMillan, 1990). Inability
to adjust branding, and balance price and product offerings, will result in
movement to the ‘in-trouble’ segment, forcing the retailer to become a lesser
competitor or exit the market (Levy et al., 2005).
Although the ‘Big Middle’ provides some compelling justifications for retail failure, there are also limitations with this theory. Manfred and Mantrala (2006) suggest the model should be extended to incorporate online retailers and the concept of e-tailing. While further research on the topic could shed light on multiple unresolved questions (Levy et al., 2005; Reynolds et al., 2007).
BHS’s
owner and senior management team ignored the evident signals that the market
was changing, and becoming more digitalised, with competition from closest
rivals intensifying. The managements blind overconfidence demonstrated their
narcissistic behaviour (Macoby, 2000). Sir
Phillip Green’s previous success with high-street giants such as Topshop may
have blinded his vision making him unable to identify his own weaknesses,
believing he only possessed strengths (Zajac & Bazerman, 1991). An arrogant
leadership, and segregation from advice or criticism (Macoby, 2000) , may have
contributed to BHS’s management resting in a stage of denial about the negative
performance of the firm (Hayes and Hyde, 1996). As market conditions continued
to shift towards more tailored and online shopper experiences, BHS ability to
compete worsened. Supporting Macoby’s (2000) theory that narcissistic
management is unable to cope in times of volatile market conditions.
Phillip
Green and Dominic Chepal’s narcissistic leadership lead to them foregoing even
the basics of running a successful retailer, hardly focusing on effective
implementation of McCarthy’s (1960) Marketing Mix. BHS disregarded the
importance of tailoring and adapting their product range to suit new trends and
customer needs, they overlooked the design and appearance of their large stores
and misjudged their pricing and promotion strategies, which did not send any
clear message or present their objectives to their target audience. The concern
of reaching short-term goals, lack of vision and unwillingness to alter
strategies, demonstrated BHS’s narcissistic governance and was a significant
cause of its failure.
BHS’
failed to adapt to the change in shopper habits, that shifted from bricks and
mortar high street shops towards a switch to online. It lagged behind many of
its rivals such as Debenhams who allowed e-tailing platforms to significantly
influence their retailer strategies and created an integrated multi-channel
shopping platform (Berman & Evans, 2006). Retailer strategies should be
carefully considered and altered for the e-tailing context, in particular
retailers should mirror their store concept online, in order to portray a
unified brand image (Muller-Lankenau et al., 2006). BHS did not portray any clear identity or
brand image in-store or on their online site, this meant that very few
customers who went online to browse the site actually purchased products, and the
website was unable to attract customers in-store either (Quinn, 2016. This was
in contrast to multiple rivals such as M&S who’s shoppers shared similar
demographics in terms of age and socio-economic position (Peters, 2015).
Failure
to grasp the significance of e-tailing at a similar time to their competitors
meant BHS was unable to take advantage of the benefits e-tailing provides, such
as consumer data collection that could generate market insights and increased
customer-brand interaction and awareness (Wang et al., 2002). Therefore, BHS’s
slow and half-hearted response to the digital shift and failure to succeed on
online platforms, contributed their collapse.
The
concept of the big middle provides a sound explanation of BHS’s retail failure.
The department store held a strong position amongst its competitors on the UK
high-street, entering the market as a low-price specialist, and later
diversifying its product range and up-scaling prices, in line with the big
middle literature (Quinn, 2016). As previously mentioned, in order to maintain
position in the big middle, retailers must adapt to market changes to meet
shopper demands (Gorton et al., 2005). Failure in redefining their business
model and their product offering, meant BHS entered the in-trouble segment,
subsequently exiting the market (Levy et al., 2005).
Furthermore, BHS’ inability to decide on the right brand identity meant they were unable to provide value to their customers, leading to decreased sales and market share. The lack of a positive identifiable brand was worsened by BHS differentiating on neither price or innovation, the two key characteristics that are essential to stay in the big middle (Levy et al., 2005). BHS’s failure to portray an identifiable brand image, with no clear price or innovation differentiator in a competitive environment was a key factor in their failure.
Earlier
in the module, a group task was undertaken with the aim of creating a marketing
plan to transform a small failing retail business. After completing the task
and the module, this process is reflected upon, supported by relevant theory.
Creating
an effective marketing plan is essential in enhancing a sustainable competitive
advantage (Azmit and Zott, 2001). While the
marketing plan featured many components, only a selection are discussed in this
reflection. The segmentation and targeting of our business was key in enabling
us to understand the needs of our customers. Due to our product offering, which
consisted of gifts for the home, we decided our target audience would be
females over the age of thirty. Although demographic segmentation is a useful
tool to identify a potential target audience (Belch and Belch, 2012), this
choice was based on broad general assumptions and not comprehensive market
analysis.
Upon
reflection, given less time constraints we would carry out in-depth market
research to fully understand who our customer is, by carrying out surveys and
interviews. Moreover, rather than just using demographic segmentation which can
be vague, we would choose psychographic segmentation which is based on
lifestyle, and adds value and depth to demographic data (Pickton &
Broderick, 2000). Furthermore, the
original choice of segmentation was extremely limited and excluded a large
section of potential customers. On reflection, we as shop owners should have
consciously aimed to make the business appeal to a wider range of people in
order to guarantee the successful re-launch of the business.
Brand
names should be memorable, unique and symbolic (Grewal, 1998), however, our
choice of name ‘Gifts R Us’ was very similar to the children’s shop ‘Toys R Us’
and therefore is not suitable and could mean our shop gets mistaken for the
retailer regularly. On reflection, a more representative firm name would be
appropriate.
Leveraging
and maximising the shop location was a key part of the marketing plan, as it is
fundamental in delivering success, especially for small retail businesses (Kuo
et al., 2002). Although the shop was not located on the busiest high street, it
instead maintained a position on a quieter more traditional road, we felt this
played to our strengths because it reflected the cosy and peaceful brand image
of the shop. In order to further enhance and compliment our product offering of
home ware gifts and to fit in with the calming ambience of the shop, we
proposed to build an accompanying coffee shop. This would differentiate our
shop from the other gift shops in the town who do not offer this service, and clear
differentiation enhances brand image (Zentes et al., 2008). The coffee shop would
also provides our shop with a clear brand extension. Brand extension maintains
consumer interaction with the product beyond an initial purchase, which is
favourable for the firm (Murphy, 1988) and can harness stronger consumer-brand
relationships (Keller, 1993). Upon reflection, this strategy was a good idea as
it encourages customers to spend longer in the shop, which may lead to
increased chance of purchase or creation of positive memories and associations.
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