Consumers spend differently. Stores and restaurants must adapt or die

Sears The End
Shoppers walk into a Sears store in Pittsburgh.

Changing tastes, changing demographics, and changing income distributions are affecting the entire structure of consumer demand in the United States, and nothing shows that more than what is happening in the retail and restaurant sectors. Yes, government regulations and taxes matter, but the way consumers spend their money matters more. The failure to recognize and adapt to those changes is what is buffeting chain retailers and chain restaurants alike. 

It seems to be an epidemic. Large retailers such as Macy’s, Sears, Office Depot, J.C. Penney, and many others are either closing stores or shutting down entirely. Weak earnings at chain restaurants have caused similarly famous brands such as Outback Steakhouse, Ruby Tuesday, Bob Evans, and Old Country Buffet to cut back or file for bankruptcy.   

Is the era of big-store, consumer-based companies over?  Unquestionably, “the times, they are a-changin', ” but that doesn’t mean every large retail-sector firm is in trouble. Indeed, those companies that have spotted the new trends and moved rapidly to adapt to them have survived and are even prospering. 

Consider the big-box retailers.  It is not as if Amazon or internet retailing suddenly appeared. Traditional brick-and-mortar retailers have had nearly two decades to evaluate the threat and react to it. 

Unfortunately, if you actually shopped at some of the old-line department stores, you couldn’t tell in which century they were operating.  They hadn’t adapted to the changing preferences of the new wave of shoppers and/or were slow to adjust to online shopping.  Loyalty, habit, and immediate gratification stopped attracting customers a long time ago. 

While some firms dawdled, the nimble pounced.  Once next-day and even same-day delivery became a reality, retailers had to determine why customers would ever want to visit stores. Other than to find the correct size or look at the options or capabilities of products such as appliances or electronics, there were few reasons to shop at stores that didn’t provide a special experience.  Those that succeeded in providing that reason succeeded.

That concept of “experience” has also been a driving force in the restaurant industry. Some chains are having significant problems attracting and retaining customers. And that really shouldn’t be a major surprise, given the ongoing seismic demographic shift from baby boomers to millennials.  Boomers have been moving away from chains for years but are not being replaced by millennials, who are looking for something different, something “authentic.”

Evaluating the restaurant industry by just looking at chains would miss the key transition that is occurring. The industry as a whole is actually doing quite well.  Last year, restaurant sales rose nearly twice as rapidly as total retail sales, and the number of restaurants in the nation rose sharply.  People are eating out.

Unfortunately for some restaurants, tastes are changing in ways that may not match their business models. There is a Comcast commercial that encapsulates the issues facing restaurants.  It profiles a restaurateur who comments that “these days, it’s phones before forks.” 

Customers are looking for something different.  They are not frequenting restaurants that provide the same old, same old.  Instead, they are patronizing the growing number of independents, as they are perceived as being unusual in some special way. 

That doesn’t mean chains cannot survive.  But it is a lot harder to reconfigure a chain with hundreds of stores than it is to open a new restaurant.  Smaller chains that are different visually and whose menus meet changing menu tastes tend to have an advantage. 

“It’s the economy, stupid!” is a famous phrase James Carville used to remind candidate Bill Clinton to focus on what was most important to voters, the condition of the economy.  But that phrase should be Rule No. 1 when it comes to running a business, and it is more important now that economic forces can change so quickly. 

Failure to rapidly adapt to the rapidly changing tastes and distribution needs of the consumer is killing companies.  Business executives, and their surrogate politicians, need to stop blaming the government for all the ills of the economy and start looking inward and recognize that it's the way the economy works that matters.  The first step in a company’s recovery is the admission that management didn’t understand the changing structure of the marketplace. 

As Wally Doolin, head of the restaurant-advisory company TDn2k, with which I work, likes to say: “In a world of uncertainty and chaos, big brands are not dead, mediocre performance is dead.” 

Good enough is no longer good enough when the world is in constant upheaval. 

jnaroff@phillynews.com