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Understanding the Death Cycle in Retailing: Causes and Prevention Strategies

The "Death Cycle" in retailing describes a series of negative events that, if unaddressed, can lead to a company's financial collapse. This cycle often begins with overstocking merchandise, leading to unpaid invoices and a damaged credit history. As financial pressures mount, retailers may take desperate measures that exacerbate the situation, resulting in chaos and loss of key personnel. To prevent this cycle, effective management systems and strategic oversight are essential. Learn how to recognize the signs and implement solutions to safeguard your retail business.

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Understanding the Death Cycle in Retailing: Causes and Prevention Strategies

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  1. The Death Cycle In Retailing Emily Burrill Lauren Edison Lori Van Metre

  2. Overview of “The Death Cycle” • “The death cycle of retailing is a series of events which, if not caught and corrected in time, will cause the financial demise of a company as surely as the sun rises in the East.” • Domino Effect

  3. Why does it happen? • Usually starts as a result of buying more merchandise than the company can sell profitably. • Invoices remain unpaid; vendors won’t ship new merchandise until they are paid • Unpaid invoices wreak havoc on retailer’s credit history • Retailer must borrow more money from the bank, often at a higher rate of interest (increased risk) • Bank eventually calls up loan • Retailer must liquidate, and business fails

  4. How does it happen? • Owner becomes frantic; short-term decisions • Circuit City • The Gap • Key employees leave • Record keeping inefficiencies • Valuable time is wasted by owner/manager • Bank issues/audits required • Deliveries of stock slow down; payments are not current • More employees leave

  5. How does it happen? • Vital work goes undone • Chaos has set in • Advertising expenses are cut • Gap commercial • Sales continue to fall • Management loses confidence

  6. How can it be prevented? • Effective retail reporting system • Keeping key employees from leaving • Better management of time and talent • Better management information system • “Big picture” thinking

  7. Sources used • “The Death Cycle in Retailing”. http://ezinearticles.com/?The-Death-Cycle-In-Retailing&id=555986 • Gap Ad—Claire Danes http://www.youtube.com/watch?v=pmKacuH_xOU • “Circuit City Under Fire” http://www.hreonline.com/HRE/story.jsp?storyId=11044839 • “Gap Inc. Seen Eyeing Job Cuts” http://money.cnn.com/2007/05/02/news/companies/gap_layoffs/index.htm

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