Ten reasons why retail businesses fail

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Most people believe that in order to achieve success, it is important to study the works of successful people and successful organizations. While this notion holds true to a good extent, it is also important and insightful to take a look at failures. Indeed, by studying and understanding what causes failure, one can gain more awareness. In fact, in order to achieve long term success, one must never ignore the aspects that can lead to failure.

Many businesses, too, start off well but often go awry somewhere along the way. This happens across businesses in every industry and the reasons for businesses failing must always be studied. In this article, we will take a look at the top ten reasons why retail businesses fail.

Whether you’re planning to start off a retail venture, or you have already established your retail store, it is important for you to consider the probable causes of retail businesses failing. Doing so will offer you a good amount of insight and may prevent your business from collapsing.

Here are the top ten causes of retail failure:

1. Lack of proper capital

As with all types of businesses, retail businesses require a good amount of capital, both to start off the venture, as well as to sustain operations. Even after starting up, many retail businesses soon reach a stage where they require additional funds to continue operating.

Business owners must always ensure that they have proper access to capital and must look to secure financing well before the business needs it. Securing capital well in time can be the determining factor between a successful venture and insolvency.

2. Disasters

Disasters, either manmade or natural, can be the death blow to a retail business. While it is often difficult to anticipate and escape disasters, retail business owners must ensure that they have a plan to combat an emergency scenario. Furthermore, business owners must ensure that they have proper and adequate insurance policies in place for such situations.

3. Underestimating costs of overheads

While a large number of business owners pay close attention to all details of their business, the cost of overheads is often overlooked. Overheads include the fixed and running costs that are required for the day to day operation of a business. If these costs are not calculated accurately, retail business owners may find themselves paying out of their pockets to sustain daily operations.

It is necessary for retail business owners to always account for overhead expenses and keep centralized funds for paying these costs. It is also a wise idea to keep a buffer on the estimation in order to cover variable and miscellaneous costs, which may not occur every day.

4. Negligence

Negligence is one of the biggest reasons retail ventures fail. Often, entrepreneurs are the ones who start off a retail venture. However, entrepreneurs, being visionaries, relish challenges and once the challenge of setting up a venture passes, their interest begins to wane.

A retail business needs a good amount of involvement and clear directions set by its leaders in order to be successful. Leaders will need to keep their interest in their retail ventures and maintain performance at all times.

5. Poor sales figures

Businesses make money by conducting sales and without sales, no business can survive. Sales are linked to many factors, including economic trends and market awareness and company management must always look to increase sales figures in order for the business to grow.

While it is not entirely possible to guarantee that a business makes sales, retail business owners must look to carefully study market trends and customer preferences. By studying the market and by bringing about necessary adjustments in strategy, a retail business can be responsive, and this can help increase sales figures.

6. Overexpansion

Many retail businesses start off well and soon plan to expand in order for the business to flourish. While expansion certainly needs to be done, it must be done in moderation. Expanding too much, or too rapidly can lead to a variety of problems which a retail business may not be ready to face.

Before attempting to expand and capture a bigger share of the market, business owners must ensure that they are adequately prepared to meet logistic challenges, financing concerns, staffing issues and supply chain management. Expanding without preparation can make retail businesses battle out for survival.

7. Problems with the management or leadership

Of the many reasons why retail businesses fail, problems with leadership or the management is one reason, which is completely the business owner’s responsibility. While a retail business may have been started off by an entrepreneur, it is important to effectively manage the day to day issues.

Lack of proper experience and incompetence of the management is one of the prime reasons why retail businesses fail. Business owners must ensure that they spot and effectively address any management problems before they go out of hand.

8. Economic conditions

Economic factors are often out of the hands of business owners. Every once in a while, there will be an economic downturn and business owners cannot avoid such a scenario. However, those retailers, who keep themselves prepared financially for such a downturn, will find themselves managing through the tough times.

Changing economic conditions is never in the hands of a business owner. However, training and planning to meet fluctuating economic conditions can prove to be the decisive factor to a retail business succeeding or failing.

9. Fraud

 

Unfortunately, fraud is something which exists in every industry Fraud and may be committed by anyone, including partners, vendors, customers or even employees. While it is not entirely possible to
escape fraud altogether, retail businesses must ensure due diligence and must keep themselves prepared for such scenarios. It is also a good idea to have insurance policies in place to cover any fraud. Doing so can allow business owners to address and combat such scenarios effectively.

10. Customer problems

Whatever business a company may be in, it needs to be able to address customer problems. Customer problems may range from customers not paying up on time, to customers being unhappy with the products or services they purchase.

While there is no guaranteed way of keeping customers happy, retailers must look to be quick in responding to customer concerns and must always maintain clear communication with customers. Doing so will keep customer problems from turning into business ending disasters.

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These are the top ten reasons why retail businesses fail.

While these reasons range from external economic factors to problems within a company, the big takeaway is that all these problems can be avoided by careful planning and preparedness to meet different scenarios. Achieving short term success in retail may come to many, but in order to make a thriving business which flourishes in the long term, it is necessary for business owners to be always prepared well in advance for different circumstances.

See Also:

In the success stories of H&M, Zara, Ikea and Walmart, luck is not a key factor

In the success stories of H&M, Zara, Ikea and Walmart, luck is not a key factor

 


About the author
Kristjan Hiiemaa
Entrepreneur building better POS and cloud-based retail management suite . Product guy. CEO & Founder of Erply.