Thursday, January 29, 2009

The Wrong Way to Build Market Share

Conventional wisdom suggests this is the perfect time to build market share by either buying troubled companies or picking up locations distressed retailers have made available. A report Thursday out of the World Economic Forum in Davos, Switzerland, carried that theme forward with comments from outgoing Best Buy CEO Brad Anderson that the consumer electronics retailer might take advantage of bankruptcies in the retail sector by snapping up vacant store locations.

My advice — Don’t Do It!

Perhaps Anderson was just being courteous and casually responding to the possibilities put forward by a reporter asking about Circuit City and the real estate now available because it is closing. After all, Anderson also was quoted as saying, “We are looking at some of those (stores), but our first priority is to stay cash strong. We would be more cautious than we would (be) in most environments and take advantage of less of that than we would have a year or two ago.”

The weight of history, at least in retailing, is that companies that grow on the carcasses of failed or failing retailers oftentimes wind up sharing the graveyard, or at least have one foot in it.

Some examples:

• Ames thought it would expand beyond New England regional status by purchasing Zayre and Hills. All it did was buy their respective problems. Ames shortly thereafter went out of business.

• Gottschalks expanded in the Pacific Northwest by purchasing Lamonts. Gottschalks is now in bankruptcy protection.

• May Department Stores became fodder for Federated to grow. Even after changing the names of the stores and the company to Macy’s, the business is dreary, mostly dragged down by the former May stores.

• Bon-Ton Stores grew from a regional player by buying Carson Pirie Scott from Saks. Nothing tangibly good has come from that acquisition.

• Going back 30-plus years, Kmart rapidly expanded by picking up many W.T. Grant stores. Yes, the buy helped Kmart become national faster than organic growth would have. But Kmart was saddled with many poor locations that contributed to its less than stellar reputation.

Some companies have successfully grown by acquisition. Target comes to mind. It bought Gold Circle, Richway, Gemco, Memco and other stores. And in its early years Wal-Mart bought smaller chains, such as Kuhn’s/Big K.

But mostly, successful retailers grew organically, by picking sites that matched their real estate strategies. They didn’t compromise their beliefs merely to save a few dollars on a location that was slightly off.

Location. Location. Location. If the location does not exactly match, pass it up. After all, one reason Best Buy is still standing, as is Bed Bath & Beyond vis-à-vis Linens ’n Things, is that it had better real estate than Circuit City.

Especially now, build market share from within. Don’t buy other people’s problems.

—Murray Forseter

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