Factors That Contribute to Retail Business Bankruptcy

retail business bankruptcy

Owning and operating a business is tough. Customer expectations coupled with their buying patterns and strong competition all have a dramatic impact on the bottom line of a business. Let's explore in further detail how some of these factors truly impact a business:

Customer Buying Patterns and Convenience

The vastness of the internet means that customers can almost always find the lowest price for any particular product. The bigger the online retailers possess more buying power that allows them to buy their inventory from a wholesaler at a lower price. And even when you add in shipping costs, most online retailers do enough business that they get healthy shipping discounts that allow them to be extremely competitive.

It has become a common practice for a customer to go and physically look at an item in a local retail store, and then go buy it online for a lower price. Often, the only way that a brick and mortar retail location can compete with an online retailer is by offering superb customer service. But even that does not eliminate the fact that a person may be swayed in their purchase by actual dollars saved.

The ability to buy from a physical retail location and take immediate possession of a product may seem like an edge over an online retailer. However that is sometimes outweighed by the ability for a customer to order something online from the convenience of their home, not have to worry about store crowds, save gas money and time, and have it delivered to their doorstep just a few days later.

From Local To Global Competition

Retail business has never been easy and has a history of owners trying to make a profit from what are already slim margins. Traditionally, retail business owners only had to deal with local competitors. Now, they are forced to compete on a global scale thanks to the online retail industry.

It has been all too common to see small retail business owners watch their business deteriorate in the midst of extreme competition and make the following types of mistakes that help lead to bankruptcy:

  1. They stop paying themselves a salary just to keep the doors open with the hope that things will improve. Expert Insight: In effect, by doing so they are working only for their employees and creditors.
  2. Use their personal savings and even retirement accounts to infuse capital into a failing business.
  3. Increase their own personal credit card limits because they use them to supplement income that they are not receiving from business proceeds.
  4. They borrow money from relatives and put it into the business.
  5. They sometimes stop paying business taxes so they can instead use the money for business operations. Expert Insight: This often makes the government one of the largest and most aggressive creditors of the business.

What To Do Next?

If some of the above sounds familiar to you or someone you know and care about, then consider meeting with experienced bankruptcy counsel to determine if a business or personal is a viable option.

If you would like an experienced set of eyes to review your situation, we encourage you to contact us today for a confidential review or call (248) 350-8220.