Understanding the Retail Industry Life Cycle and Quitting Business Strategically
In fact, if facilitated correctly, it can actually be more profitable than selling as an ongoing business, but also more rewarding.
All businesses – for a variety of reasons – will eventually come to the end of their retail life cycle.
The reality is someday you’ll need to close and walk away.
Whether its because of retirement, lost lease, lost passion, death, divorce, debt, poor marketing decisions, poor buying decisions, poor management decisions, your property becoming more valuable than your business, or a host of other reasons.
When people get started in business – retail industry or otherwise – seldom do they think about their eventual exit or what I like to call the end of their business life cycle.
Embracing and understanding that quitting business strategically with a retirement sale [liquidation] is nothing to be ashamed of.
With long lines of customers and minimal discounts
Yet regardless of the reason shame, fear, and guilt often consume those same business owners when they arrive at their point of exit; the end of their business life cycle.
Why is that?
In over 20 years of helping independent retailers face the often uncomfortable situation of moving on, I’ve encountered each and every one of the situations I listed above.
I found myself explaining their options over and over again, so that is the entire point of this article.
Before I jump into the options when facing the end of the retail life cycle it’s important to fully understand that everyone has a different life cycle, and one is not better or worse than the other (which I’ll explain later).
For example, your life cycle may be 4 years whereas another retailer may have a life cycle of 10 years, and yet another retailer may have a life cycle of 72 years.
The length of your life cycle doesn’t matter.
What matters is how you cope with and handle the end of your life cycle.
Essentially you have two viable options:
- Sell the business.
- Liquidate the business.
Super simple, right?
Well, on the surface, yes. When break each one down, however, it’s a bit more complex.
Regardless of when your retail business comes to the end of it’s life cycle and for whatever the reason- most people tend to think of SELLING their business first.
This is because of pride in most instances because “liquidating” tends to bring out scary images in the mind which often fester into even more scary false realities (like shame, fear, and guilt)
Break down selling your business into the psychological parts, and you remove the real estate from the equation (if, in fact, you do own it versus leasing).
Then you will realize that there is one overriding factor that will play the biggest role in your ability to sell the business: profit.
Meaning, how much of it are you generating with your business. For most, it’s not much.
It’s got nothing to do with your passion for the business, how much time you’ve invested in it, how great your buying skills are, how much your staff loves you, or anything else. It’s all about profit.
But let’s assume you have a retail business that is CRANKING out the profit each and every month and you have a track record of success…then what?
Now, you have to actually find and qualify a buyer. Easy right?
You’ve got a successful business, so this should be a BREEZE!
Well, now you have to break it down once again…do you try to find this qualified buyer yourself or do you enlist the services of a business broker (who takes a relatively large percentage of the sale price IF they are able find a qualified buyer)?
Regardless of which direction you choose here (yourself or a broker) you still have to find someone qualified…and THAT is the hardest part.
MOST of the people I’ve spoken to over the last 20 years that wanted to pursue this way first before seriously considering liquidation always seemed to have an “ace in the hole” to buy their business, usually a manager or relative.
- What ends up happening in these instances is months and months of wasted time waiting on these people to get their financial situation together so they can qualify.
- And the business owner happily waits because this is the “best person to carry on your legacy and knows the business the best”. Sometimes this goes on for years.
Again, pride and to an extent “ego” gets in the way of what is going to produce the most profit and get you out the fastest.
So, although selling is often the first strategy retailers want to try -especially when they already have a successful business, I’ve also found that this is the first strategy of those who are NOT doing that well in business.
Think about this for a moment…
You got started in the retail business because maybe you had a passion for the type of business you ended up starting.
Or maybe you started a retail business because you simply wanted to be your own boss.
Maybe it was simply a great opportunity you couldn’t pass up.
Regardless of the reason, if your business is not producing a healthy profit why would someone want to buy it as an ongoing business?
They can establish their own vendor relationships, so they’re not going to want to pay you even close to your cost for an inventory that may be aged, stale, or not what they think is a good mix.
Fixtures and equipment (FF&E) lose their value quickly. Staff -even if super high quality and highly trained- offers only so much value with regards to the real valuation of your business.
So why would you even consider trying to sell your retail store as a going business if it’s not producing a profit? Again, usually it’s because you feel some sort of shame, guilt, or fear by evaluating all your options, particularly liquidation.
This shame, guilt, or fear is also almost always shrouded with the cloak of pride because “doggonit, I built this thing from the ground up and I’m proud of what I’ve done!”.
Believe me, I understand.
Psychologically speaking it’s a very plausible argument, however, LOGICALLY it is not.
Especially when you have educated yourself a bit on marketing and the strategies available to you that could result in substantially more profit than selling (and that’s whether your store is profitable or not).
This segues perfectly into the second option you have when your retail life cycle has come to it’s end: liquidation.
“You mean having an auction?”, I’m often asked.
No. Auctions can be painful to watch or be a part of, are usually quite costly to do (hiring a company and loss of profit from cheap sale of goods.
Plus they can create an embarrassing situation for you to deal with in the community after it’s over.
I’m talking about having a well facilitated AND executed retirement sale (aka, store closing sale, going out of business sale, quitting business sale, et al).
Which has proven time and time again for me over more than 20 years of facilitating and executing them to be highly profitable for my retailer clients.
What’s more, they can be done quickly (several weeks) all while professionally converting your inventory and assets to cash.
Depending on your circumstances up to 175% return of cost plus FF&E) with marketing costs that are far less than what you’d lose trying to sell it as an ongoing business.
I know this sounds very self serving (and it is), but I can back up this claim with facts (aside from my numerous client testimonial videos).
Marketing is what has either made you successful or made you not so successful with your retail store because if you’re marketing is not good, then you’re not turning your merchandise enough to generate enough profit to lead the lifestyle you imagined when you started the business.
The same goes with marketing a retirement sale.
My keen understanding of customer psychology, fear of loss, and timing all play a huge role in the marketing systems I’ve developed that (blushes) have received some pretty cool endorsements from retail industry legends like Bill Glazer!
All that being said, I can say with candor that when you’ve arrived at the end of your retail life cycle, and you want to not only walk away profitably but also with your head held very high.
Proud for what you accomplished, then a well facilitated, well executed retirement sale, store closing sale, or going out of business sale is what you want.
When you take the time to methodically break down the only two real options you have, then you’ll see that’s true on your own as well.