The beginning of a new year is about reform, rejuvenation and, sometimes, reduction. We’re not talking about reducing waistlines, but rather store closings. Last year saw another record number of store closings. Sears Holding Company filed for bankruptcy and retailers such as Lowe’s, Macy’s and Victoria’s Secret all closed locations.
Retail continues to fall on hard times. Whether traditional retailers are competing with Amazon and e-commerce in general or the rise of online direct-to-consumer companies, they’re struggling. But private equity continues to plague the retail landscape. One example of this formula for destruction is the closing of Shopko stores in 2018. Shopko is a rural retailer based in Wisconsin. In addition to its online presence, Shopko has 363 stores in 24 states, located in the Central, Western and Pacific Northwest regions of the U.S. Its regional influence makes it an interesting case, especially considering its niche customer base.
Shopko is owned by the private equity firm Sun Capital and its story is all too similar to the demise of beloved toy retailer Toys ‘R’ Us. The company is drowning in debt and has done everything from selling pharmacy customer lists to competitors like Hyvee and Kroger to taking new loans in an effort to recover. Closing 39 stores in 2018 was also a large part of this effort.
In an article for RetailDive, analyst Nick Egelanian said that e-commerce had little to do with the store closings, adding “Being on a short leash by [Sun Capital], there is little investment in stores. They are a wreck.” Much like Toys ‘R’ Us, Shopko was unable to keep stores updated and relevant due to the cost of servicing so much debt. Today’s retail landscape is so cutthroat that consumers expect a slick in-store experience and all the ease of Amazon on a retailer’s website. When retailers, like Shopko, take on too much debt and can no longer invest in their stores, it’s a recipe for disaster.
Brand consultant Brian Kelly told RetailDive that Shopko is just “another retailer broken by debt and a PE firm, caught in the death spiral of blindly trying to goose sales and [ending] up flogging the brand.”
What makes Shopko interesting is not only that it’s a regional retailer, but also rural. One of Shopko’s largest competitors is Tractor Supply, which scored a customer loyalty score higher than even Amazon this past year (the retailer was only beat out by Costco’s net promoter score). Culture and brand loyalty are key and possibly even more important than ever before. E-commerce has made the locations of physical stores less relevant than they were 20 years ago. This means that retailers have to invest in their stores and keep customers coming back for a brand experience. Shopko hasn’t shuttered completely, but we’ve seen this formula before. Let’s not dwell on the store closings of last year, but rather learn from them this year.
To read more about Toys ‘R’ Us, click here. To catch up on what IBSW has to say on e-commerce, click here. If you’re looking to invest in your business this year and finally understand your customer insights, let Ironbridge help you make sense of all that data.Click here to request a demo.
UPDATE: In March 2019, Shopko announced it is going out of business. The retailer was unable to find a buyer for the business, but is still exploring options for its optical centers. According to Chain Store Age, Shopko’s Chapter 11 filing described “excess debt and ongoing competitive pressures, and reported assets of less than $1 billion and liabilities between $1 billion and $10 billion.” The retailer had been operating 360 stores when they filed for bankruptcy in January of this year. All stores are now expected to shutter.
Written by Kim Kelly Consulting
**This story is still developing**