In September 2017, Toys “R” Us filed for bankruptcy. The following year, it closed all of its U.S. stores: more than 700 in total. Many assumed it was the end of the company’s 61-year legacy — but last week, Toys “R” Us made headlines once again. It was staging a comeback.
The company has relaunched its website, with Target fulfilling all sales, and is opening two “experiential” brick-and-mortar locations. In a similar vein, GameStop, under the leadership of a new CEO, recently announced it will make a selection of stores more experiential — through the addition of couches, tournaments, and vintage console games — in an attempt to stave off further collapse. (Its shares have declined 64% this year.)
“For leadership teams, turning around a company represents the truest test of their performance,” stated a Boston Consulting Group (BCG) report. “Yet the unfortunate reality is that many leaders fall short. Seventy-five percent of major transformation efforts do not achieve their expectations for target value, timing, or both.” For leaders aiming to defeat the odds and launch a successful comeback, here are three smart strategies.
1. Redefine Your Focus
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In preparing its report about “comeback kids,” the BCG screened the S&P Global 1200 index for companies that had “experienced a significant decline in revenue, profit margins, and/or market capitalization … followed by a clear rebound.” With that data, it determined “five critical elements of a successful turnaround”—one of which was redefining strategic focus.
“Leaders need to determine where to play (and where to avoid) in terms of product and service offerings, customer segments, and geographic markets,” the authors explained. It cited the example of Groupe PSA, the parent company of brands such as Peugeot and Citroën. Groupe PSA lost $5.4 billion in 2014, before deciding to reshape its portfolio and “differentiate its brands in the eyes of car buyers”; in four years, it increased its market cap by more than 700%.
Another illustration of strategic refocusing comes from Pabst Blue Ribbon (PBR). In 2001, the beer brand was on track to sell fewer than 1 million barrels after witnessing declining sales for two straight decades. It decided to hire a marketing company, Fizz, to identify the few customers who were still purchasing the product (the original hipsters). It then refocused all of its marketing resources on that population. Within five years, PBR had “recorded a combined annual growth of 55% and had almost doubled its volume,” wrote Fizz’s Ted Wright.
2. Gather Customer Feedback
Before a leader redefines their company’s focus, however, they should first seek the input of the most important stakeholders: customers. “For those companies looking to make a comeback, looping customer feedback into the decision-making process is key,” Andrew Reid wrote in Fast Company. “History shows that when companies listen to their customers, collaborate with them and innovate together, they thrive. And when they don’t, they fail.”
For evidence of this approach’s efficacy, one can examine the comebacks of two very different companies: Starbucks and Lego. In 2008, a struggling Starbucks closed 600 stores and laid off 12,000 employees. Former CEO Howard Schultz returned to lead the recovery, telling the Wall Street Journal that the company needed to “put ourselves in the shoes of our customers” and “[l]ive and breathe Starbucks the way our customers do.” He launched a digital platform to collect customer feedback; it received more than 150,000 suggestions, of which hundreds were implemented. Ten years later, in 2018, Starbucks earned a record $6.3 billion.
Lego was also in dire straits at the turn of the 21st century. In 2003, it lost $3 million, and was projected to lose $4 million the following year. When Jørgen Vig Knudstorp took the helm in 2004, he took steps to ascertain — and then deliver — what the company’s young customers wanted. Within a decade, Lego surpassed Mattel to become the largest toy company in the world. “The Lego community, like the basic interchangeable plastic brick, is one of the company’s core assets,” Knudstorp told the Harvard Business Review in 2009. “They are an avenue to the truth. And in today’s world, a CEO needs every avenue to the truth that he or she can find.”
3. Seek Winning Collaborations
Research from EY shows that nearly one-third of firms have formed a “strategic alliance” with a company in their industry — a move that can prove particularly effective for leaders attempting a comeback. (Consider the deals struck by Kohl’s with Amazon and Toys“R”Us with Target.)
“As the evolving business landscape challenges companies to move fast or risk falling behind, innovative industrial mash-ups could prove a key driver of future success and help organizations better keep pace with the breakneck speed of modern innovation,” Paul Brody wrote at EY. Indeed, speed and digital fluency were vital to the Toys“R”Us collaboration, with Richard Barry, CEO of parent company Tru Kids, calling Target the “ideal” retail partner because of its “toy assortment, digital strength and ability to deliver orders to shoppers in a matter of hours.”
In a different form, Marvel, too, revitalized its business with the help of external partners. In 2000, the company had only $3 million in the bank and stock values of less than $1 per share. Just nine years later, it was acquired by Disney for $4.3 billion. The single most important decision in that turnaround? While many believe it was creating an in-house production studio, Marvel’s then-CEO Peter Cuneo told a Forbes contributor that it was, in fact, partnering with other companies through licensing deals.
It remains to be seen whether the efforts of Toys “R” Us and GameStop will be as successful as those of the “comeback kids” mentioned above. The good news, though, is they will get more than a fair chance. As University of Richmond history professor Edward Ayers told WBUR, Americans love a comeback story. It “does seem to be something that’s hardwired into the American psyche,” he said, “to somehow cheer for people who seem as if they are up against the odds.”
Source: Forbes