7 Easily Missed Danger Signs Your Retail Business Is Failing

By Bob Phibbs

Updated October 3, 2024

The signs a business is failing are easy to miss when you’re busy running a retail store. Catch them early, and you have a chance to turn things around.

I remember a buddy of mine who went to work for Circuit City. He did a great job and was promoted many times. Because each employee’s paycheck was impacted by how much they sold and that didn’t get returned, their salespeople knew they had to learn the products and go around helping people. If they didn’t maintain their sales numbers, they were weeded out.

When Circuit City’s new CEO announced in July 2000 that they would no longer sell appliances, my buddy knew it was time to leave. They also got rid of commissioned salespeople. By 2009, all stores were closed.

My friend got out years before they imploded. Why is it employees often see danger signs before owners and managers? Because they see things through the lens of a customer and their own paychecks.

To help you see your danger signs, I’m sharing seven of the signs I’ve seen in businesses of all sizes. If you do not take action to stop or fix them, these dangers will overtake your business.

Look out for these seven signs a business is failing

When you’re immersed in the day-to-day operations of your business, and you’re accustomed to ups and downs, it’s easy to overlook obvious signs that your business is in danger -- until it’s too late to save it.

If even two of these signs a business is failing apply to your retail store, it’s time to re-strategize.

1. Sales rely heavily on discounts

Never-ending discounts can be a major warning sign of failing retail. Think of the brands most in trouble right now and I’m sure you’ll think of GAP with their endless 40% off this weekend only and Bed, Bath, & Beyond with their endless coupons.

When you constantly drum the sale items, you teach your shoppers to only buy when things are marked down. That ruins margins and morale.

2. KPIs are falling

The most important metric everyone still looks at from smaller to larger stores is simply, did you sell more this year than last? While you can have an online store, BOPIS, and other strategies to attract customers to you, the only thing that really matters is if they buy from you.

This is true in-store too, your average number of items sold per customer should rise; it is the one metric your employees can most impact. Of course, if you don’t have a solid training plan, you’re only hoping for increases. Hope is not a strategy.

3. Your store has high employee turnover

Employees quit managers not companies. When the best employees keep leaving for greener pastures, that’s one of the signs a business is failing.

When a job is seen as repetitive, mindless, and not rewarded, good employees look elsewhere. You can check any business on Glassdoor to see what current and former employees really think of your job, but your number of W-2’s you sent last year shouldn’t be a huge increase from the prior year. If it is, your employees are walking due to stress, anxiety, and frequent boredom.

4. Customers feel like a burden, not a priority.

A struggling business sees shoppers as distracting from their tasks or conversations. I kid you not, I had a buddy of mine go into a hardware store last week in his wheelchair, approach the counter, and ask for help. The guy simply replied, “I’m on break,” and walked away.

The odd thing is, another employee had helped him so much the previous day that he went out of his way to return. Never again. When employees can get away with behaviors like this, it shows no one is managing the store.

5. You’re not taking a paycheck

I received a request for consultation from a woman whose retail business was struggling. She wondered if she and her business partner should just declare Chapter 11 and be done with it.

They hadn’t taken money out of the business for two years -- more than enough time to suspect a failing retail store.

I had recommended she get a copy of my book before we spoke. On the phone, she told me that she just started reading it and realized she had been running her business all wrong. When she read that I had written, “If you’ve taken another job to support your business, you’re doing it all wrong,” she felt I was talking to her.

She told me, “I’ve taken a $20 an hour job to be able to pay an employee $15 an hour at my store. What was I thinking?”

6. You undercut your employees

I used to work with a coffee chain and we had spent months developing our version of Pumpkin Spice for the fall. The team had taken care to get input from several people and sign-offs on the taste profile.

Over the weekend, prior to giving the order for the products, the owner capriciously said he didn’t like the taste and demanded a change. Within 24 hours, the team got a sample he liked but no one else did.

The launch failed spectacularly with customers and left the new-products team demoralized; several left shortly thereafter.

7. New customer acquisition costs have increased

In 2018, online furniture retailer Wayfair revealed it had spent $196 each on its 3.6 million new customers. Brick-and-mortar retailers often run sales and promotions to attract shoppers, but unless your average ticket can support it, you are often chasing your tail.

While it’s true, promoting loss leaders is a tried-and-true way to get shoppers, without margins, it can be destroying profits. If your untrained staff can only sell the low-margin, low-profit sale items, it makes it even worse, leading to a failing retail store unless you correct course.

Never ignore danger signs a business is failing

Smaller businesses often-times will tout, we own the building, so we have more room to maneuver and even large ones like Macy’s and Hudson Bay have eyed their own real estate as a buffer to lower sales. But that can only do so much to prevent retail failing.

The point of this post is to not kid yourself that lower key performance indicators are the norm, or your crew is wonderful because they tell you.

The keys to taking your store to the next level all lie in how well you continue to guard against these seven warning signs and take the challenges to them seriously.

If you’d like help with that, just let me know.