In Brief
The Problem
In pursuit of double-digit revenue growth, many retailers relentlessly open new stores, even when doing so destroys the profitability of their businesses.
The Cause
This addiction is fueled by Wall Street and a capitalist culture that’s obsessed with growth. It’s hard to kick, primarily because companies don’t know when or how to switch to a slow-growth strategy.
The Solution
Mature companies should rely on a strategy that focuses on growing revenues of existing stores faster than expenses.
Companies in all industries eventually see their revenue growth slow. Retailers are no exception. Fickle consumers, intense competition, changing markets, and the rapid encroachment of online retailing all combine to exert pressure on the top line. The retail graveyard is filled with chains such as Circuit City, Austin Reed, Linens ’n Things, Loehmann’s, British Home Stores, RadioShack, and the Sports Authority—that expanded rapidly and then, faced with declining growth, couldn’t find ways to change course.