competitive intelligence failure

6 signals that help you recognize the failure of competitors

On August 5, 2018, retail giant Toys R Us officially closed its doors after 70 years of business. The company’s financial troubles were already well known, having filed for Chapter 11 bankruptcy in September of 2017, but the decision to close its remaining 807 brick-and-mortar locations still shocked many who are familiar with the toy industry. Other retailers, like Payless, Wet Seal, and RadioShack, had managed to successfully exit bankruptcy during the same year, and many believed Toys R Us was on the right track. Still, there were indications that Toys R Us wasn’t going to recover its losses, long before the decision to shut down was made public.

Knowing in advance that a competitor is failing can provide numerous opportunities for your business to grow. On the other hand, getting caught off guard puts your company at a disadvantage, making it harder to move quickly and fill the void left behind.

These are 6 warning signs that your competition might be going under: 

1. CFO turnover: 

According to a study by recruiting firm Korn/Ferry International with 1,000 companies surveyed, only 4% of businesses saw their new CFO leave within a year of taking the job. Only 15% lost a CFO within 2 years of hiring. The main reasons CFOs cited for leaving were operational problems and a fear of harming their own careers if/when the company went under on their watch. So, if a company can’t seem to hang on to a CFO, it could stem from bigger problems behind the scenes.

2. Insider sales: 

In a similar vein, insider selling at public companies can indicate that the company’s future isn’t looking bright. Executives sell stock all the time, often for reasons unrelated to the company’s performance. But when multiple executives dump their stock at the same time, it’s worth investigating why.

3. Slashing budgets: 

At Toys R Us, workers across the county reported that cleanings, remodels, and repairs were being overlooked. Sometimes indefinitely, months before the retailer went under. While that information may be hard to obtain, you can identify when expenses, such as marketing budgets, have been slashed. Are they missing from tradeshows? Have their Google pay-per-click ads stopping showing up? Has their display advertising dried up? These are only some of the signals that marketing budgets took a cut.

4. Unpublicized website changes: 

Failing companies may quietly update their websites to reflect internal changes that they don't want the public to notice. If you’re tracking your competitors’ websites, keep an eye out for missing product pages, removed executive profiles, and dropped partnerships. Even a general decrease in press releases, events, and everyday communication can signal that problems are mounting inside the company.

5. Unexpected pivots: 

To attract customers and appease investors, failing companies may try to switch up their offerings when the end seems nigh. In 2017, Toys R Us started positioning itself as an interactive playground where kids could test out new toys, in an effort to distinguish itself from competitors like Amazon, Target, and Walmart. Borders, the defunct book chain, took the opposite approach by rolling out an ebook service a year prior to closing, in a last-ditch attempt to keep up with Amazon’s Kindle. Both companies made dramatic shifts away from their core businesses in their final days, with equally unsuccessful results.

6. Layoffs and buyouts: 

Companies struggling to stay afloat may try to cut expenses by cutting staff. Layoffs are a pretty obvious signal that a business can’t pay its workers, but executive buyouts can also be an overlooked sign of trouble. Senior managers and executives are usually highly compensated and cutting a few of those high salaries and generous penchants might indicate that a company is looking to scale back expenditures at the cost of long-term stability and leadership.

Conclusion

When analyzing your competition, it is always important to keep in mind what developments for competitors mean to your business. Do you notice one or more of the 5 signals that mentioned above that a competitor is failing? Maybe this poses opportunities for your business. But it can also mean that your competitor is failing because of something that  is also a threat to your business. 

Always keep your competitive intelligence up to date in order to grasp opportunities or defend your company against potential threat. Having knowledge about your competition helps you to stay ahead of your competition.

Source: CI Radar