Breakout

3 Retailers Rebuilt to Last

Jeff Macke
Breakout

There's no substitute for experience. In the life of every person or corporation there will eventually be moments of adversity. The latest hot, trendy store will someday have to deal with changes in consumer tastes, a downturn in the economy or just its own failure to execute.

When times get tough, most companies simply disappear; others tweak their business just enough to stay alive. Retailers like Sears (SHLD) and RadioShack (RSH) have been staggering along for years, failing to evolve or dedicate the resources necessary to convince customers to come back. They seem trapped in time, offering the same goods that have been hashed over and rejected countless times already.

The best companies, or for that matter people, are those that have met adversity by taking it as an opportunity to rediscover what they did best while changing to meet the times. For a business to thrive it needs to reliably deliver what its customers expect and then add just a little bit more as a special treat.

In the attached clip, retail expert Hitha Prabhakar, author of Black Market Billions lists three companies that haven't just survived but have also come back much better than when they first captured the public's attention.

Home Depot (HD)

The housing meltdown hit Home Depot hard. During boom times, when millions of Americans were remodeling and "flipping" houses, Home Depot's biggest problem was keeping all the hardware and supplies in stock.

When the music stopped, the home improvement retailer was stuck with palates full of lumber in a world with no construction. In short, they needed to rebuild their concept from the studs up in order to survive.

Prabhakar says Home Depot got bigger by thinking smaller. Rather than just selling materials to build a house, they started selling the stuff that goes inside, such as seasonal decorative goods, Fourth of July supplies and plants. Home Depot made itself into a store where Prabhakar herself shops for the outstanding customer service and huge selection.

Not only did Home Depot survive the downturn, but they positioned themselves to benefit from the housing recovery that's only just getting started.

In 2008, Home Depot's earnings fell more than 20% and sales were dropping off a cliff. Since then, income has more than tripled to nearly $8 billion last year; a 16% rise in 2012.

The Gap (GPS)

The Gap was founded in 1969 as a place for young people to get blue jeans in sizes not being sold elsewhere. "The Gap" is actually a reference to the Generation Gap between teens and their parents.

Thirty years later the Gap had become one of the greatest success stories in American retail history. The company had expanded into a wider array of goods, but they were mainly concentrated on basics — jeans, t-shirts, jackets — high-quality stuff that was always in stock.

Slowly but surely the Gap lost its way. Space that was formerly dedicated to jeans suddenly became aggressively fashion-forward. Basics became increasingly hard to find, and piles of unsold, trendy items were scattered all over the place, collecting dust and turning stores into flea markets of marked-down cast-offs.

With sales in a free-fall and customers flocking to whatever merchants were hip at any given moment, the Gap had to decide if it was going to be a struggling house of fashion or go back to its roots with a twist. Prabhakar says the new Gap has cut back on the sales and created it's own line of athletic wear to compete with the likes of Lululemon.

You can see the results in the stores and GPS stock, which has more than doubled since the end of 2011.

Nordstrom (JWN)

Prabhakar's final comeback retailer is a company that has always been about evolution. Nordstrom was started in 1901 as a shoe store based in Seattle. From there it's grown into one of the most successful, if not largest, department store chains in the world by expanding into new territory without ever completely losing sight of their real mission.

"Not only do I think they're hot now, but I think they've been hot for a while now," Prabhakar explains. Nordstrom knows exactly who their customer is, a focus that distinguishes the chain from its failed peers, like J.C. Penney (JCP). Department stores die because "they start to lose who their customer is and they don't know who's going in there shopping."

Nordstrom's commitment to customer service sets it apart from its peers and pays off at the register. The company just marked its 5th straight year of double-digit profit growth.

Nordstrom, Gap and Home Depot found out the hard way that neglected shoppers will take their business elsewhere. What separates these three retailers from the pack is that they rediscovered what their customers want and figured out how to deliver just a little more.

What do you think about these retailers? Let us know in the comment section below or visit us on Facebook!

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