It’s said that management involves dealing with complexity, and leadership involves helping others deal with change. Particularly in today’s 24-hour and global markets, in which your customers and your competitors can come from anywhere, the maxim’s truer than ever. Change or die, and to do this you’re going to need some good direction. Unfortunately, more often than not businesses fail to adapt. Even massive companies from 1985 have gone defunct. In fact, only 71 companies remain today from the original 1955 Fortune 500 list. Here’s our list of the real ringers, businesses that really, really flopped.
1. Blockbuster Video
Blockbuster Video has a long and winding history. They saw some pretty extreme heights in their day, and through a series of blunders became obsolete. Blockbuster was founded by David Cook in 1985. By 1987 he had sold Blockbuster to a trio of investors for US$18.5 million. Four years later Blockbuster was the undisputed leader of video rentals, and being bought by Viacom for 500 times the sum (US$8.4 BILLION). The company went public in 1999, but this might have had less to do with its business strength and more to do with its steady cash flow from late fees. Which is exactly why the competition emerged. After obtaining a US$40 late fee for Apollo 13, Reed Hastings founded Netflix. Blockbuster took in US$800 million in late fees in 2000, and also declined to purchase Netflix (the anti-late fee competitor) for a mere US$20 million. Blockbuster had instead decided to team up with Enron Broadband Services to roll out on-demand movies. When Enron filed for bankruptcy in the midst of an accounting scandal in 2001, this deal went away. By 2002 Netflix was public and rolling, while Blockbuster posted losses of US$1.6 billion. By 2005 Blockbuster finally caught on that customers didn’t like late fees, but the cards were already set against them. Upon rolling out a “no late fee” campaign, Blockbuster was promptly sued by customers in every state for misrepresenting their policies to customers. By 2010 the company was worth just US$24 million with US$1.1 billion in revenue losses. Knocked out.
Like many of the companies on our list, it is a truly exasperating tale of a cash-rich business with years and years in which to change the way they do things, and still failing. In 2004, Reed Hastings noted that “in the past 6 months, Blockbuster has thrown everything but the kitchen sink at us.” The next morning Reed Hastings receives a package from Blockbuster: a kitchen sink.
2. Borders
Borders began 40 years ago as a single store in Ann Arbor, Michigan, proceeded to go public and reach an all time share price of US$44.88 in 1997, and was out of business by 2011. Though their innovative inventory management system was the “envy of the industry” in 1995, they failed to adapt to the digital age, ignored changes in consumer preferences, and had some questionable interactions with Amazon. While the entire brick-and-mortar book selling industry has hit hard times with the rise of e-marketplaces like Amazon, Borders was at least slightly more well diversified, with music, movies, and e-reader sales. Borders also had the potential to move a large portion of sales online, only they partnered with a rival to provide their online sales. Yes, from 2001 to 2008 Borders outsourced their website to Amazon, shutting down their potential to have their own online presence.
While effectively nixing their online presence, Borders continued to expand their store space (and thus potential profit), yet managed not to fill their stores with products their customers were interested in. A continued reliance on CD and DVD offerings after users were heading online for entertainment, as well as a new categorization system for products that put large publishers before small presses eroded one of the largest reasons customers still go to brick-and-mortar stores: quality curated products. As Borders filed for bankruptcy, many stores were costing the company US$2 million a week to keep running; in the end Borders closed its remaining 399 stores and laid off 11,000 people.
3. Eastman Kodak Co.
Though founded in 1888, this illustrious photo firm hit peak stock prices of over US$80 a share in 1999. With stocks down to 78 cents a share by 2010, it may seem like the demise of Kodak is a recent thing, but they’ve been failing to adapt for at least half a century. Kodak’s original business model involved selling consumers on quality, giving away their cameras, and in turn getting them hooked on the money-making photo developing process. This was great, but was started to become threatened as early as 1948, with the advent of instant photography. Kodak knew they had to respond to the growing trend, and created their own instant developing camera in response to Polaroid. It was a knock off, however, and this was obvious, with Polaroid suing for damages from Kodak’s “theft” of their idea. In 1990 Polaroid won close to a billion dollars in damages. While this was going on, new competitors in the film space emerged, and took advantage of the growing mass distributors like Wal-Mart, who wanted mass produced and ever cheaper merchandise. Fuji undercut Kodak, and gained notice in the west by sponsoring large events like the 1984 L.A. Olympics. After having their share of the film industry taken from them, Kodak lost US$1.2 billion and laid off close to 20,000 employees in 1999.
One of many glaring company mistakes came in the form of Kodak’s 1988 overpriced acquisition of Sterling Drug Inc. The idea was that drug research and Kodak’s own chemical production would go hand in hand. What they hadn’t vouched on was trying to understand and get ahead in a pharmaceutical business they didn’t know. Their options: either make super cheap generics, or undergo massive research costs for cutting edge drugs, and hope for a home run. Unfortunately they did neither, and sold the drug company off in pieces for a fraction of the cost.
4. Sears
Sears was on-point around the year 1973, when it constructed the then tallest building in the world: the Sear’s tower. The retailer started in 1886, when Richard Sears sold watches at a train station in Minnesota. Due to his success, Mr. Sears moved to Chicago and started distributing a mail-order catalogue. Along with his partner Alvah C. Roebuck, Sears eventually grew to present a 500 page catalogue that clothed, housed, and provided for generations of Americans.
It’s too bad that when a new generation of large retailers came onto the scene, Sears wasn’t able to adapt. After opening up their first retail store in 1925, Sears lost sight of what they did well (namely, work as a marketplace without brick and mortar stores) and was soon found in most towns in America. Playing the new large retailer game, they were pitted against retailers like Wal-Mart and Kmart, and by 1992 were bleeding money in the form of US$2.3 billion in losses, and the need to cut 47,000 jobs. It’s a bit ironic that Sears failed to adapt by adapting. A modern catalogue-based Sears (i.e. the internet) sounds a lot like Amazon. Though Sears has tried to turn its weakness (massive costs attached to tons of retail space) into a profit by opening up 3,800 of its stores to other retailers, it also looks like the 120+ year old retailer is headed for bankruptcy. Time will tell.
5. Pan American World Airways
The airline long holding the record for the quickest flight around the world, as well as providing many innovations in the airline industry ceased operations in 1991. Their use of jet aircraft, jumbo jets, and computerized reservation systems were ahead of their time, and their early identification of routes of geopolitical importance allowed them to operate buffered by the government from other domestic carriers, and maintain a near monopoly on international flight for many years. Their Clippers pioneered many routes to South America, and their Boeing 314 flying boats lowered the travel time from San Francisco to Singapore from 25 days to 6 days. The height of Pan Am was in the late 60’s. By 1968 their service extended to 86 countries on every continent save Antarctica, and their routes covered 81,410 un-duplicated miles. During the period they were known for comfort, with on-board service and cuisine inspired by Maxim’s de Paris, and multilingual, largely college graduated and nursing-trained cabin staff.
If you’re wondering what went wrong with Pan Am, it was that it flew to close to the sun. As such an illustrious brand it was the target of a number of high profile terrorist attacks as well as non-terrorist related crashes. No matter their record, some PR failures are too big to get over. Flying with empty seats for three years after the flight 103 disaster, the company failed to pivot and parked its wings one last time 1991.
6. US Postal Service
This once illustrious organization is led by a Postmaster General, and was started back in the days of the Revolutionary War with Benjamin Franklin as its head. Unfortunately the US Postal Service (USPS) just doesn’t make money anymore, and has been burning through cash for years. After several defaults on debt, and a scarily low cash flow (around the Government shutdown last year the USPS only had around 5 days worth of operational costs available), it’s obvious that the government isn’t letting the USPS shut down.
That doesn’t mean that some major adaptation doesn’t need to go on. With UPS and a growing reliance on non-physical communication, first-class mail revenue is down 30% since 2007, and expected to drop a further 40% by the year 2020. While the agency pioneered many new mail delivery and organizational techniques (think the first national mail system, the pony express, or air mail), currently 80% of its costs are tied up in labour compensation, a much higher rate than FedEx or UPS. Some innovation needs to happen, or we need to suck it up and continue to let our beloved service leave its debt obligations unfulfilled.
7. Hummer
How do you run a brand so synonymous with rugged American individualism - and our love for larger stuff - as Hummer into the ground? You ignore changes in the America your brand represents. Though there’s no denying that Hummers can take you into the wilderness, over obstacles, and hold a lot of stuff while doing all of this, Hummer has come to be thought of as simply a gas guzzler of a car in recent years.
As consumers doubt shifted from economic concerns about the price of gas to environmental concerns about how wasteful a vehicle like the Hummer is, sales plummeted. No one wants a status symbol that makes you look bad. But perhaps it was just a gimmick all along. First created for the military in 1991, Hummer’s lifespan is a good bit shorter than any other brand on our list. After a failed sale of the brand to Chinese auto maker Tengzhong in 2010, parent brand GM decided to close the operation down. As of February 2010 Hummer dealerships had about 2,500 vehicles in their inventories and has sold just 265 units nationwide the month before.
8. Abercrombie & Fitch
One way to not adapt is to be so out of touch with your consumers that they find you offensive. That’s the route that A&E took when shooting their brand in the foot. While the aloof, woodsy-prep vibe fit for kids of the 90’s and early 2000’s, the previous ‘exclusivity’ of the brand quickly became offensive to the wider world - a world that’s increasingly non-white, sun-kissed, and uniformly dressed for a crew meet. After a series of discriminatory lawsuits from employees who didn’t have “the look” (including the pilot of A&E’s corporate jet, who was settled with after filing a suit alleging he was terminated for his age), as well as an interview in which an A&E district manager says they would rather burn clothes than give them to poor people, A&E found itself recently voted the second most hated brand in the America by 24/7 Wall street.
While the closing of their brand for professionals (Ruehl) sucked up millions in 2009, the true root of their problem is being out of touch with the people that have always bought their clothes: teenagers. For a look inside their cultish and fetishized headquarters, check out this feature by NYMAG.
9. Blackberry
They weren’t called “crackberries” for nothing. But even though the rise to the top was meteoric, so was the fall. Welcome to one of the most competitive and quickly evolving industries on the planet. The original Blackberries were a bit like pagers with larger displays and tiny keyboards. They were revolutionary in the late 90’s, as one of the only ways to access and send email effectively from a phone, but now mobile online traffic is through the roof, and consumers are A LOT pickier.
While Blackberry’s new Passport smartphone does offer more text per line, and more work space than many rivals, the key point here is that Blackberry went from being a central player in the smartphone game to a fringe player - all in little more than 10 years time. Blackberry has become leaner (they’ve trimmed headcount by about 60% in the past three years), and is working on several projects to lift themselves back into prominence, but they will have to do so from quite a distance behind Apple and Samsung in the current market.
10. JC Penney
Though side-by-side in many of America’s malls, JC Penney didn’t make the same mistakes as Sears, and has maintained one of the largest catalogue retail business in the US. But gone are the heydays of JC Penneys as the place to go for clothes for work, church, or children for America’s middle class. An obvious trouble is one faced by most brick-and-mortar retailers in the US: the massive costs of storefront upkeep, administration, and presentation of their goods. The deeper problem for JC Penney is their identity crisis. People like to buy into a brand, and JC Penney has lost theirs.
Two pivots have occurred in recent years, one targeting a more upscale audience through their offering of a wider selection of brands, and another pushing the image of being a discount store for America’s Middle Class. The gap between what you can pay at a clearance rack and at full price in JC Penney is wider than almost any other retailer. A second problem comes from a recent redesign of floor layouts, limiting the number of goods that can be on the floor at once, as well as common scenes of neglect, disorganization, and an unfriendly consumer experience (check out the last link for images). While JC Penney at least still has a vigorous online and catalogue business, their in-store business looks to be going the way of most American mall brands.
Top image: Abandoned Barber-Colman factory in Rockford, Illinois. Credit: slworking2/Flickr.
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