Retailers that Came Back from Big Setbacks, From Chipotle to Apple
Starbucks was seven months from insolvency when Howard Schultz returned to Starbucks in 2008 to take the reigns again as CEO. After getting the company back to focusing on the basics, cutting costs and retraining employees Starbucks turnaround is one for the history books.
But Starbucks is not the only retailer that has questioned its fate. From Apple to Chipotle some of our favourite retailers have faced setbacks that no one thought they could come back from. But as history shows the retail sector is more resilient than we realize. Here are some of the best comebacks that either you didn’t know about or you have long forgotten.
1. Chipotle
Ask almost anyone and they will say that they remember the E.coli outbreak that hit Chipotle in 2015 and 2016. The outbreak affected 60 people in 14 states in the U.S, more than 20 of which were hospitalized. If two outbreaks were not enough Chipotle also had a norovirus outbreak that sickened 120 students at Boston College in 2017.
This was a terrible situation with not only human impacts but financial ones as well. In the third quarter of 2016, Chipotle’s same store sales were down 21.9%. It is also estimated that Chipotle lost nearly a billion dollars due to the E.coli outbreak. Then Chipotle had another food borne illness outbreak in 2018 due to food left at unsafe temperatures, infecting 700 people.
Needless to say Chipotle faced extremely trying times for several years in row. Customers were so spooked by the food safety issues that a survey conducted in 2018 found that 32% of consumers said that “nothing” would make them want to visit the chain more frequently.
As Chipotle expanded many years ago it struggled to maintain quality control over its fresh items which led to many food borne illnesses. Speaking about this, a former Chipotle supply chain executive said: “we would go through millions of pounds of cilantro! That’s such a dangerous item—so many nooks and crannies where E.coli can hide.” “As much fresh produce as they deal with…in retrospect, I can’t believe somebody didn’t raise a red flag.”
Speaking about Chipotle’s troubles, Aaron Allen a restaurant consultant said: “the setback around the food safety issues that they had certainly was one of the most tremendous losses of value ever seen in food service.” Chipotle’s stock went into a downward spiral falling from $750 on Oct. 15, 2015 to $251 on Feb. 2018 a loss in value of 67%.
After all of these food safety issues many thought Chipotle was done but it made a comeback. With food safety a priority, workers can no longer enter a Chipotle kitchen without undergoing a health and wellness check. “We have a very different food-safety culture than we did two years ago. ” “We’ve got cleaner that actually kills norovirus when you clean the tables in the dining room” said CEO, Brian Niccol. By Mid August 2019 Chipotle’s stock was up three fold. And in the third quarter of 2019 sales store sales were up 11%.
2. Apple
Many people may not know that Apple was once on the brink of financial ruin. When Steve Jobs returned to the company he founded, in 1997, the Apple was in dire straits. It was less than 90 days away from running out of cash.
Jobs stepped in and found that Apple had lost its focus. There were more than 300 projects in development and Apple was creating multiple versions of the same products. After conducting interviews with many parts of the business and assessing what was most important, pretty quickly Jobs cut down the number of projects by 70%. Then he mandated that company focus on making just four great products.
Jobs has said: "people think focus means saying yes to the thing you've got to focus on. But that's not what it means at all. It means saying no to the hundred other good ideas that there are. You have to pick carefully. I'm actually as proud of the things we haven't done as the things I have done. Innovation is saying no to 1,000 things."
Jobs laid off more than three thousand people and negotiated a deal with nemesis Microsoft. The deal involved an investment in Apple from Microsoft to the tune of $150 million dollars. That gave Apple much needed liquidity. That lifeline was one of the keys to saving Apple from financial ruin. After losing $1 billion in 1997 Apple made $300 million one year later in 1998. By 2011 Apple was the world’s largest company making $108 billion in sales and Jobs is credited with achieving one of the biggest turnarounds in corporate history.
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3. Starbucks
It is hard to believe it now but in 2008 Starbucks was near financial ruin. The coffee retailer expanded too aggressively tripling the number of its stores from 5,000 to 15,000 in less than ten years.
New stores were cannibalizing sales from older stores. In the process Starbucks shifted away from its roots as a place to go and enjoy a great cup of coffee. McDonald’s and Dunkin were taking share and traffic in Starbucks stores was declining.
In 2008 Starbucks stock was down 75% versus the previous two years.To turn the company around former CEO Howard Schultz returned to Starbucks in 2008 to take the reins as CEO after an eight year hiatus. Starbucks closed 900 locations, laid off 12,000 people and invested in training its employees. That included a “save the company” session where Schultz brought all of Starbucks’ 10,000 store managers together in one location to encourage them to step up to a new level. The session cost Starbucks $30 million and Schultz made the investment even though Starbucks could not afford it at the time. It also took place during the great recession of 2008 when it was unheard of to have large scale company events.
Starbucks also closed all of its more than 7,000 stores in the U.S. to train employees which cost the company $24 million in lost labour and wages. The goal was to ensure that employees knew how to make a great cup of coffee since the quality had fallen off. Schultz has said that if the company continued along the trajectory it was on at that time Starbucks would have been insolvent in seven months. But after these initiatives Starbucks started to climb towards previous performance levels within six months. Between when Schultz returned to Starbucks in 2008 and January 2020, Starbucks’ stock is up 2,100%.
4. GM
Do you remember the time when it looked like General Motors (GM) might cease to exist? In 2005 GM’s sales peaked at 17 million vehicles. Then rising gas prices caused GM’s sales to go into a downward spiral. Add to that the fact that GM was uncompetitive for many ears. Toyota then went on to pass GM as the world’s largest car maker in 2007.
2007 also marks the year GM lost $38.7 billion. Let that sink in. By 2009, GM’s stock fell below $1, the first time since the great depression. Then GM filed for bankruptcy. But the government stepped in with a bailout to rescue the car manufacturer. In total GM was given $50 billion.
To turnaround the company, GM cut 20,000 jobs, got rid of its Pontiac, Saturn, Saab and Hummer divisions to focus on the models with the most potential. It also closed 11 factories. But by 2010 GM was back in the black with its first profit since 2004, of $4.7 billion. By 2012 GM was named the top car manufacturer in the world.
5. Best Buy
Many believed Best Buy would have a fate similar to other electronics retailers like Circuit City which went bankrupt in the aftermath of Amazon. That was when showrooming was popular. Consumers would go to Best Buy stores, look at and test merchandise then buy it at a cheaper price on Amazon.
In 2012 Best Buy’s stock hit a low of $10, the same year a CEO, Hubert Joly, joined the company. He increased the quantity and quality of Best Buy’s store labour and trained employees in new categories such as virtual reality and smart home appliances to provide better service. He also started price matching Amazon’s prices. Speaking about this Joly has said "until I match Amazon's prices, the customers are ours to lose".
Best Buy also realized that with the fast pace of technological change that customers needed help determining what products to buy. In recognition of this in September of 2017 Best Buy expanded its In-Home Advisor program to all major markets in the US. Customers using this service can receive advice for free on which technology products to buy and how they should be installed. By the end of 2018 these advisors provided more than 175,000 consultations. The revenue generated per order for Best Buy from these interactions is much higher than from online or in-store.
Finally, Best Buy launched a subscription service nationwide in April of 2018 called Total Tech Support. The service costs $199.99 per year and allows customers to receive unlimited Geek Squad support across several touch points including online, in-store, over the phone and through Best Buy’s app. Service is available 24/7.
In 2020 Best’s Buy’s stock passed $90.00.
6. Whole Foods
The first Whole Foods store opened in 1980. Within less than a year, the historic Memorial Day Floods of 1981 occurred, the worst flood in 70 years. The new Whole Foods store was completely flooded, swimming in seven feet of water.
The flood destroyed Whole Foods’ inventory and caused $400,000 in damages. That’s a small amount for Whole Foods now but at the time Whole Foods did not have any insurance. It looked like Whole Foods would go under literally and figuratively. But the local community stepped up to save the retailer. Creditors, investors and vendors gave the grocery retailer the space to get back on solid footing. Whole Foods ended up back in businesses after only 28 days.