"I don't wanna grow up, I'm a Toys R' Us kid..."
Ahh, that jingle. It's an iconic brand song that stuck through the decades as the lasting memory of the Toys R' Us company. Sadly, for 31,000 employees, hundreds of cities and municipalities, and millions of former customers, a memory is all that's left of the toy giant, after the organization filed for bankruptcy and has begun liquidating its assets - most notably to Amazon. While many people think the e-tailer was responsible for killing this beloved company, they'd be wrong.
I never spent a lot of time at Toys R' Us growing up. My family always spent more time in malls, where the ubiquitous toy store there was Kay Bee. I still have fond memories of that bright, BRIGHT, pink carpet and yellow walls, covered in toys, as I wandered down the aisle to scout my next Transformer or Lego set. Ah, those were the days...
But I digress. With more and more retail giants closing down, I thought I'd take a few minutes to jot down some thoughts on who I think are the next companies to close up shop, and why. This has nothing to do with debt, assets, or balance sheets - this is pure speculation, gut feelings, and some logic sprinkled in.
Sears was quasi dead to me after they vacated the tallest building in the US in Chicago, leaving some obscure, British based insurance company with the naming rights. To someone on the east coast, its the equivalent of the Yankees getting bored, leaving to go play in Utica, and then letting the Red Sox move in and call it Nomar Pahk. No - just...no.
Anyways, Sears has been on life support as a company for a long time, and they're an easy target. I hate to pile on, but the last time I went into a Sears, I was horridly disappointed. The racks looked terribly uncared for, staff were wandering around or chatting to each other - and while this may be indicative of one store's management rather than the company as a whole, I'm not the only one who feels this way. Given the extremely competitive landscape for retail, Sears lack of quality service is just going to continue to cause the company to plummet until it eventually hits rock bottom.
Look, I love - LOVE - shopping at Kohls. It's got everything a traditional department store has, but just less of it, and at that mid-range price and quality point that services the middle class with aplomb. I've never had a bad experience shopping at Kohls, and I always find 1-2 items that just last in my wardrobe rotation for years.
Of course, that mid-range price is exactly why I'm afraid they're going to be hit VERY hard, very soon. In 2016, the company closed 18 stores and while they're doing ok for now, they're a store that services the middle of the market - and that market has been shrinking for years. It's a well known fact that the middle-incomes have been declining in this country for years, leaving low-wage earning baristas and service workers and high paying tech/business professionals as the remaining customers. Someone earning $30k a year doesn't have the income to drop $50 on a pair of pants, and the person earning $300k wants something nicer. Yes, the middle isn't gone yet, but it's being squeezed hard - and with Target rapidly expanding and improving their home goods - Kohls may be next in line to go belly up.
3. Darden Restaurants/Other Suburban Chain Restaurants*
You may not have heard of Darden, but you absolutely have heard of their brands - Olive Garden, LongHorn, Capital Grille - these and other suburban staples like Outback, TGI Fridays, and Applebees are synonymous with average to above average dining experiences at reasonable prices, and family oriented. Some people may get wasted at these establishments' bars - but on the average night, it's about the families.
And - that's kinda why these and other chains are suffering. People can blame Millenials and their avocado toast all they want - but it's not consumer tastes and preferences that's dooming these brands - though that does certainly have some impact. The fact is that young families, while they exist in the suburbs, are increasingly being found in urban areas - where these restaurants aren't. Sure, not all suburban diners are families of 4 - but if you're out on a date night, do you really want to take your significant other, or group of friends to an Olive Garden? Now, that asterisk was a caveat, whereby, I don't really think these restaurants are all going to go away. Yes, Applebees and IHOP have had major store closures recently, and they are a major reason why I've put this group on my list.
However, if there's one thing I've learned about business, its that companies pivot or die. Some of these brands will likely die, but there's a LOT of floorspace these companies either own outright or have long term leases on. I don't see them all closing up because their target market moved a few miles away. I see a re-branding and unveiling of new concepts in old locations. Much like Seasons 52 (a Darden Company) arose to fill the gap of a dining experience that appeals to affluent men in their late 50s, so too will there be a brand that is designed to target the remaining people in their early-late 30s who want to still feel young and cool, but can't be bothered to drive to the city and certainly aren't going clubbing or bar hopping.
Denny's, Red Lobster, Ruby Tuesdays - these may all eventually wrap up their brands - but the holding companies will certainly bring out new concepts in the same spaces.
General thoughts and musings about the work SSC Solutions does and other things happening in and around Philadelphia