Three Businesses that are Circling the Drain

A News Analysis

Last night, the 70-year-old Fremont Theater in San Luis Obispo, California, closed its doors, apparently for good. It made me sad, as I have fond memories of going to watch many an exciting new movie there. Plus, its classic Art Deco facade is one of the key fixtures in San Luis Obispo’s downtown, helping to give that city its character.

UPDATE: It turns out the Fremont Theater will be re-opening! I appear to have spoken a bit too soon. Sorry.

Alas, such is the price of free market capitalism – if a business can’t stay profitable in the face of its competitors, it goes away. This Darwinian nature of the business world recently claimed a giant of the video game industry. As of this morning, THQ, makers of Saint’s Row, Darksiders, Red Faction, and the Warhammer 40,000 video games, has ceased to exist after its last assets have been liquidated. Not long ago, the company was one of a handful of video game developer studios that every gamer instantly recognized, yet according to its outgoing CEO Jason Rubin, the company had a bad habit of throwing too much good money after bad.

“To be sure, all triple-A publishers have been under pressure, but THQ had every chance to survive had it not made massive mistakes.”  Rubin said.

Among the mistakes he described were sinking too much money into a massive multi-player online game that was eventually scrapped, continuing to develop children’s games after it was clear that its mobile-gaming competitors had captured the children’s market, and building the uDraw peripheral for the Nintendo Wii, PlayStation 3, and Xbox 360 that sold poorly and lost the company more than $100 million.

THQ’s collapse caught many by surprise, including myself, but in retrospect, the company had been circling the drain for a while. This got me thinking, what other companies are headed on the path of doom? Here’s what I’ve come up with:

BlackBerry

BlackBerry image from Forbes magazine

The problem with being in the technology business is that you are entirely dependent on your ability to stay ahead of your competitors. Technology companies are like runners in a race, if we assume the runners that fall behind get shot. And boy, has Canadian firm Research in Motion fallen really far behind.

RIM had actually been one of the first to introduce the concept of the smartphone, when they unveiled the BlackBerry in 2003. The idea of technological convergence between cell phones, computers, PDAs, and other devices into something that looks like it came from Star Trek has in the past decade not only become “normal”, but downright “expected”. Between the iPhone, the Samsung Galaxy SIII, the Motorola Droid, and more, mobile technology has sped off at an amazing clip.

Yet being first has been a curse for the BlackBerry. Its own inertia has been sinking it for years, as the makers of apps and peripherals want to make stuff for the latest and greatest devices and neglect the BlackBerry. The company has taken to drastic measures to try to catch up: on Wednesday, they announced that they are not only releasing two new phones – the Z10 and Q10, both of which are supposed to have “caught up” technologically with their far superior rivals – but that they are changing their corporate name to “BlackBerry”.

Yet one can’t escape a sense of desperation at the announcement. The phones will be advertised during the Super Bowl, we are told, but the release date in the United States isn’t until March. The firm also announced that their phones will finally be able to support Skype, Kindle, and Angry Birds. Things that their rivals have supported for years. In fact, early reviewers complain that BlackBerry’s new phones are still a desert when it comes to the apps they support.

Rather than feeling like celebrating, investors have taken the announcement as a call to abandon ship: the company’s shares have fallen 17% since the announcement. Even Forbes Magazine predicts the company might not be around for more than two years.

J.C. Penney

JC Penney ad image from Business Insider

Yep, I’m harping on this again.

The reason I keep bringing up J.C. Penney is that my family has many life-long, devoted Penney customers, all of whom have been turned away by the company’s “bold new vision”. And you know what? They are far from alone.

In just one year, the company has been hit big-time by rapidly declining sales as confused customers leave. CEO Ron Johnson, the man behind these changes, at first kept pressing ahead, claiming the problem was that the company simply hadn’t communicated the changes very well. He unveiled a whole new redesign of the store’s layout and business model, including things like a “denim bar” and “mobile checkouts”. It still wasn’t working, and the company is still bleeding money.

Lately, the company has been backtracking, announcing that some of the things they had tried to get rid of are being brought back. But I think it is too little, too late. J.C. Penney now tops the list of the most hated companies in America, according to a poll by 24/7 Wall Street. The brand has been damaged irreparably. In its desperation to reach the Millennial market, it has very publicly booted out its established customer base and told them, “You aren’t welcome here”. It’s kind of too late to take that back. And its insistence that shoppers had to be “retrained” in how to shop just insulted everyone’s intelligence. A few repetitions of “I’m sorry, I was wrong” are not going to fix that.

The U.S. Postal Service

Delivery truck image from Wikipedia

Okay, so technically the U.S. Postal Service isn’t a company, it’s a government agency. But you wouldn’t know it from the way it functions. Going into a post office and going into, say, a UPS Store is not much different of an experience. Heck, the postal service even advertises its shipping service like a private company.

And that’s just the problem.

Originally, mail service in the United States was carried out by the Post Office Department, which was created in 1792 as a part of the President’s Cabinet and administration, just like the State Department, Treasury Department or Interior Department. Then, in 1971, the Postal Reorganization Act turned it into the modern sort-of-government-agency-but-independent body that it is today.

It is run by a Board of Governors appointed by the President, and by law only the Postal Service can deliver letters and postcards into your mailbox. It is America’s third-largest employer, with 546,000 employees. On the other hand, its shipping services face fierce competition from private carriers like UPS, FedEx and DHL, and since the 1980s it has been forced to support itself financially with no taxpayer funding, making it essentially a for-profit business as far as its budget is concerned.

This dichotomy is not sustainable. In fact, the Postal Service says it will have to shut down completely in October if Congress doesn’t act soon. Already, it has reached the limit of how much money it can borrow to support itself. It has also completely stopped paying benefits to its retirees, leaving former postal workers high and dry. It is bleeding money to the tune of $30 million a day. Postmaster General Patrick Donahoe told Congress last March, “If the Postal Service were a private company, we would be engaged in Chapter 11 bankruptcy proceedings.”

The fact is, e-mail has taken away a massive portion of the Postal Service’s business. The one thing it had a monopoly on is no longer a monopoly in any real sense – it competes with Gmail, Hotmail, Outlook, Yahoo! Mail, and so on. And it does so at a severe competitive disadvantage: physical letters are slower to write and slower to deliver, hence their nickname “snail mail”, and they cost far more to send than, you know, FREE.

Some proposed measures to save the Postal Service have included ending Saturday mail service and closing post offices, but as of yet Congress has been too distracted to act.

Great. Now I’m depressed. *Sigh.*

This'll make me feel better.

This’ll make me feel better.

2 Responses to Three Businesses that are Circling the Drain

  1. Pingback: Brain Drippings 3 « Cat Flag

  2. Pingback: Cat Flag’s Guide to Understanding Millennials: Brands that Fail Utterly at “Getting” Us | Cat Flag

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