Poor planning is potentially tragic; critical lapses in judgment often result in bankruptcy. Following the 2008 financial crisis, the rate of insolvency has gone up as companies grapple with an unstable international economic landscape. Moreover, the rapid advance of technology is constantly reshaping that landscape, making it difficult for businesses to adapt.
The following four businesses made errors in their strategic planning and, as such, were unable to keep pace with their competitors – cautionary tales for multigenerational family businesses with their eyes on the future.
Roberto Cavalli
Roberto Cavalli became a household name in the world of luxury fashion with the launch of his debut collection and the subsequent inauguration of his first boutique in the early 1970s. Famous for his distressed denim and animal prints, Cavalli’s innovative designs attracted the attention of fashion houses including Hermes and Pierre Cardin. Over the years, those designs emphasised opulence above all else – a strategy that did not bode well for Cavalli in the contracting luxury retail market.
Cavalli’s brand is now coming apart at the seams. The US branch of Roberto Cavalli filed for bankruptcy on 29 March 2019. The company cited declining sales for the precipitous downturn, and employees were notified of store foreclosures as they happened. Yet, the company’s slumping sales are only part of their misfortune.
In recent years, the brand’s styles were viewed increasingly as outdated. Cavalli attempted to inject new life into the brand with the arrival of Paul Surridge, a young designer who rose through the ranks of men’s fashion associated with brands including Burberry and Zegna. Despite Cavalli’s efforts, Surridge’s vision and Cavalli’s iconic patterns never meshed well, only compounding sales woes.
Cavalli’s success depended on its bricks-and-mortar stores in luxury malls. Over the last decade, however, an over-reliance on physical stores has adversely affected retailers in all sectors, as consumers diversified their purchasing habits. Other fashion brands that failed to adopt e-commerce were also hit hard. Moreover, successful brands also employed strategies like virtual modelling and real-time digital measurement software to drive sales.
Cavalli’s failure to innovate, both in terms of style and sales practices, may have destroyed the fashion house. The liquidation of Cavalli’s US assets was finalised in spring 2019, and the remainder of their European assets were sold to DAMAC Properties of Dubai.
Forever 21
Forever 21 is an affordable, fast-fashion giant known for its low prices and regular sales. The company started in 1984 in Los Angeles by two Korean immigrants initially focused on wholesaling other brands. With the funds gathered in its first few years, the brand began producing its own styles. At its peak, the brand was approving more than 400 designs a day. That unbridled expansion became a recurring contributor to the company’s downfall.
On 29 September 2019, Forever 21 joined the growing list of retailers declaring bankruptcy. With its plethora of designs, the company never established a clear style. Instead, the brand’s identity revolved around its price point. That alone was not enough for Forever 21 to differentiate itself from its competitors, including H&M and Zara, whose styles mimic high fashion on a budget. Forever 21’s fast-fashion aesthetic also failed to resonate with millennials, who are quickly becoming the most important retail demographic.
Millennials tend to consider sustainability when making their purchases, and Forever 21’s quality did not meet those expectations. Furthermore, their production practices in lesser developed countries damaged the company’s image with consumers. Ethical sourcing is another important factor for millennials – a preference on which Forever 21’s competition has done well to capitalise.
In 2019, the company was forced to close all its Canadian locations and significantly downsize in the US. Despite losing more than 170 retail locations, Forever 21 has announced plans to restructure. Whether its efforts will pay off depends largely on the efficacy of a strategic structural overhaul and an increased online sales presence.
Thomas Cook
Thomas Cook was an international travel group founded in 1841 that offered discount and boutique travel packages. The company sold its customers fully planned journeys, providing not only convenience but also security. However, as the world changed, travellers did too.
Travel packages have gradually fallen out of favour over the past two decades. Instead, millennial travellers increasingly opt for budget adventures personally tailored to their interests, and these backpacking adventurers were not well served by Thomas Cook’s model. Despite a rebranding and an injection of capital when the company was acquired by C&N Touristic AG in 2001, Thomas Cook continued to flounder.
It was too little too late: the majority of Thomas Cook’s business operations remained analogue in a digital age, but its travel agents were supplanted by online customer self-service. The company’s dwindling customer base declined further with the advent of Brexit: fewer Brits travel now, and the cost of fuel has gone up, as did the price of storefront locations across Europe.
In the end, Thomas Cook failed to innovate and could no longer meet customer demands.
Sugarfina
Sugarfina is a luxury candy company famous for is its alcohol-infused confections. The company launched online in 2012, with its first boutique opening in Beverly Hills in 2013. Sugarfina’s smart packaging and artisanal candies were a hit with upscale clientele – so much so that the company attracted investment from Goldman Sachs CEO David M Solomon as well as U2 singer Bono.
The high was short-lived. In just a few years, Sugarfina’s fortunes plummeted. The company’s profitability was inextricably linked to its e-commerce domain and corporate wholesales. The corporation expanded its physical presence, particularly in high-end malls, as part of an ill-advised international plan.
The company haemorrhaged money. Not even an injection of $35 million by Great Hills Partners in 2017 could stop the decline. Rather than regulating its expansion, Sugarfina turned to feature products with partner companies, including Super Mario Brothers Candy Cubes and Alfred’s Cold Brew Bears, as a desperate play to save their business. Despite the move, Sugarfina lost millions for consecutive years.
The company was forced to file for Chapter 11 bankruptcy for all its holdings in September 2019. Less than two months later, Bristol Luxury Group, a subsidiary of Bristol Group LLC, acquired Sugarfina’s assets for $15.1 million. Bristol has stated that it intends to keep the candy operation running through omnichannel distribution.
