November 5, 2019 Private Equity
Barneys New York and other retailers have struggled in the age of the internet. But what if they had radically changed instead of continuing with business as usual?
“The entire industry is in survival mode,” Barneys CEO Daniella Vitale told employees earlier this year, according to a recording obtained by CNBC. “The model is not working, it’s not working for Neiman [Marcus Group], it’s not working for Saks [Fifth Avenue], it’s not working for us, it’s not working for Nordstrom.”
Barneys has traveled down the road of many other retailers trying to reorganize and cut expenses, including most recently Forever 21. Toys “R” Us, which at one point had about 1,600 stores, was one of the big retail bankruptcies of recent years, generating plenty of headlines in 2017 and 2018 and leading to thousands of layoffs.
But bad business plans and debt may have also put pressure on these companies and contributed to the bankruptcies. Private equity firms saddled Toys “R” Us with about $5 billion in debt in the years leading up to its bankruptcy, hurting its ability to revamp the company.
Companies have to reinvent themselves in the age of digital transformation; sometimes, leadership waits too long before taking any radical but necessary steps such as closing stores and adjusting the business model.
It’s difficult to turn around a company with mounting losses and high expenses; almost no company does it. But there are ways to remake a stumbling laggard. The Lego Group, which is private, repositioned itself as a leader in quality in the early part of the 2000s. Starbucks Corp. turned itself around in 2008. Sometimes, companies need to redefine the focus, writes Jason Wingard, dean and professor of the School of Professional Studies at Columbia University, in Forbes.
Corporate leaders at strong companies realize that IT is no longer limited to a support function, but is an essential part of business strategy. Boards and management teams should commit to technological change. As part of this, leadership should define what success looks like, writes Roberto Torres of CIO Dive. Be adaptable. Don’t wait for competitors to encroach on your customers before making changes. Upper management must steer this ship. You can’t blame all your troubles on the internet.