It’s not hard to tell when a retailer is on the verge of failure. Their financial disclosures reference loan covenant issues while underlying liquidity and solvency issues begin to draw fire from all sides.
These symptoms tend to become noticeable only once the store’s decline is well underway, but there are also ten early warning signs that may indicate to customers, vendors, and employees that they should begin to take their business elsewhere.
1. Reductions in Selling Space
If a store has suddenly closed off some of its selling space, that usually indicates lost productivity. Store Liquidation Companies help the business owner sell off inventory, then the shutters close on upper or lower floors. Not too long after, the store will likely close its doors altogether.
2. Reductions in Inventory
In today’s markets, when supply chain disruptions are common, there’s no reason to worry about a few empty shelves.
That said if a store is exhibiting chronic stock outages or a lack of continuity in stocking merchandise, that often signals an internal liquidity problem.
3. Elimination of Amenities or Services
If a retailer stops offering amenities or services, customers might want to worry. Look at factors like the availability of adequate boxes and bags for consumer purchases and departments that stop offering free gift wrapping.
4. Changes in Return Policies
While healthy retailers occasionally make changes to their return policies to avert aberrant customer behavior, some types of change can be a sign of inner turmoil.
If the changes in return policies are out of line with the company’s values and industry best practices, that can be a sign of trouble to come.
5. Poor Merchandise Quality
Stores that have always sold high-quality products sometimes switch to cheaper options when they start to struggle to make ends meet.
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Customers may notice that the clothes no longer fit as well or the packaging looks cheaper.
6. Reduction in Marketing
Stores that can’t pay their bills often reduce spending on marketing. They may take out fewer newspaper ads, hire lower-quality artists and copywriters, or cut back media distribution.
7. Lack of Price Competitiveness
As retailers slowly go out of business, they may stop offering competitive prices. Stores that take this approach to raise revenue tend to lose integrity in the eyes of their customers and are unlikely to make comebacks.
8. Reductions in Customer Service
If every department seems to be understaffed and there are fewer checkout stations open than ever, that could be a sign of trouble. The company may be laying off employees to cut back on overhead.
9. Lower Housekeeping Standards
Retail stores get dirty quickly if they lack housekeeping, yet this is one of the first services that many store owners cut.
If there’s dirt on the floors or disheveled merchandise on the shelves, those could be signs of trouble to come.
10. Physical Disrepair
One of the most serious signs on this list is properties that are entering a state of physical disrepair. Issues like unlit external signs, leaky roofs, potholes in the parking lot, and even reductions in lighting as bulbs burn out and don’t get replaced can all spell imminent trouble.
Know What to Expect
Once retailers start to go downhill, even minor changes can create a snowball effect. If customers, vendors, or other stakeholders notice the signs described above, they should know what to expect. The store will probably go out of business soon.
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