The 2010s marked a great decade for corporate America. Corporate sales of companies in the S&P 500 rose more than 50% since the start of the decade. Profit margins nearly doubled and have climbed 170%. Stock prices have risen the most, with the S&P 500 up 190% decade-to-date.
But it wasn’t a great decade for all of corporate America. Instead, the 2010s also marked the end for a lot of companies, and not just small ones. Some once very big and very important companies hit the end of the road this decade.
Which big and important companies didn’t survive the decade? Why didn’t they survive? Perhaps most importantly, what lessons can we learn from these fallen giants?
Let’s answer all of those questions and more by taking a close look at the seven most important companies that didn’t survive the 2010s.
By the mid-2010s, streaming services became the norm, and physical video rentals became extinct. Several companies didn’t keep up with this transition — Blockbuster being one of them — and as a result, this once very big and important physical video rental giant didn’t survive.
Why It Matters: Everything that can be digitized, will be. Blockbuster learned this the hard way. But they weren’t the only ones. The digitization of DVDs and movies was just the tip of the iceberg. It’s happening in the video game world, too, where GameStop (NYSE:GME) is struggling to stay alive. It’s also happening in corporate America, where virtualization is turning some former legacy tech giants into shells of their former selves. This “digitization of everything” trend will persist into the 2020s. As it does, a good piece of advice is to invest in companies that are digitizing industries, and stay away from companies that are behind the digitization curb.
Why It Didn’t Survive: Once upon a time, there were two giant bookstore companies in America: Barnes & Noble (NYSE:BKS) and Borders. Today, BKS is a shell of its former self, while the latter has disappeared. Yet again, we find that digitization is the culprit here.
Long story short, technology has evolved to a point where consumers don’t need physical books anymore. They can read books online through their computers and tablets. As this transition unfolded throughout the 2010s from physical to digital books, Borders didn’t innovate — instead, they simply became less relevant, until one day, Borders was no more.
Why It Matters: Borders’ extinction in the 2010s matters for the same reasons that Blockbusters’ extinction matters: digitization is an unstoppable trend that is only gaining momentum, and you want to align your investments with this trend. Buy stock in companies that are attempting to disrupt traditional industries by digitizing them. Avoid buying stock in companies that are incumbents in those industries and doing very little to go digital.
Why It Didn’t Survive: Very much unlike the other companies on this list, a secular trend did not derail biotech company Theranos. Instead, some combination of deceit and fraud derailed Theranos.
In essence, Theranos said that they had developed technologies which, through a single prick of the finger, could identify various health problems. The problem, though, is that Theranos didn’t exactly have that technology. Instead, what they had was a significantly less advanced version of what they were saying they had. To make matters worse, the company reportedly overstated financial metrics with investors, too, which only made the whole business seem like a lie. Theranos eventually folded under the weight of all this scrutiny.
Why It Matters: If it’s too good to be true, it may actually be too good to be true. What Theranos promised consumers — a complex health diagnosis from one prick of a finger — seemed way too good to be true. And it was. This has happened before with Enron. The lesson here is that, if a company comes up with something that seems like a miraculous breakthrough, make sure that miraculous breakthrough actually holds water and isn’t just management doing chest puffing.
Toys “R” Us
Why It Didn’t Survive: Once America’s favorite destination for children’s toys, Toys “R” Us didn’t survive the 2010s for two simple reasons: e-commerce and debt. The e-commerce trend gained significant traction and momentum in the 2010s, leading to an outflow of sales from legacy physical retailers (like Toys “R” Us) and into new e-retailers (like Amazon (NASDAQ:AMZN)).
At the same time, Toys R Us was dealing with several billions of dollars in debt on the balance sheet. All that debt had to be serviced with several hundred million dollar interest payments each year, leaving the retailer with very little free cash to invest back into the business. The result? Toys R Us didn’t change, and the rest of the retail industry did. An inability to change ultimately led to the death of Toys “R” Us.
Why It Matters: The e-commerce trend isn’t going away anytime soon. Thus, more sales will flow out of physical retailers and into e-retailers. What Toys “R” Us taught us is to avoid buying stock in physical retailers that have too much debt to adequately pivot their businesses to compete in today’s omni-channel retail world.
This is a very important distinction from “avoid all physical retailers.” Some physical retailers have successfully created huge e-commerce businesses — see Walmart (NYSE:WMT), Target (NYSE:TGT), and Costco (NASDAQ:COST). They did this because they had the resources to do it. Other retailers don’t have those resources, mostly because all of their cash is going towards paying down debt. Those are the retailers to avoid in the 2020s.
The Sports Authority
Why It Didn’t Survive: Sporting goods retailer The Sports Authority didn’t survive the 2010s for largely the same reasons that Toys “R” Us didn’t survive the 2010s. That is, the company didn’t adjust quickly enough to the e-commerce trend, and was burdened by too much debt to make any significant change after the fact.
Also of note, The Sports Authority was hit hard by a direct sales wave in the athletic apparel industry, wherein athletic apparel brands like Nike (NYSE:NKE) started making an aggressive push to sell product directly through their own website and stores, and not through wholesale partners like The Sports Authority. This only added salt to the wound, and in the end, The Sports Authority’s wounds were too big to heal.
Why It Matters: The athletic apparel industry is still rapidly pivoting towards a direct sales model. That doesn’t mean wholesale partners in the athletic apparel world are all going extinct. But, it does mean that Nike and others will continue to be more selective about where they put their product, which further means that the number of wholesale partners in the athletic apparel industry will continue to shrink. High quality partners in this space, like Dick’s Sporting Goods (NYSE:DKS) and Foot Locker (NYSE:FL), should be just fine because Nike will continue to put product into those channels. But lower quality partners, like Big 5 Sporting Goods (NASDAQ:BGFV), will likely continue to struggle.
Why It Didn’t Survive: Perhaps the most notable bankruptcy of the decade was that of Sears, who once upon a time was the largest retailer in the world. How did a company that was once so big and so important go under? The same way that all of the physical retailers on this list went under.
In simple terms, Sears was late to realize that e-commerce was the future of retail. By the time management realized it, sales and profits were already dropping in a big way. Because the company had such huge interest payments from its big debt load, management wasn’t left with much cash to throw back into the business. Sears failed to innovate or adapt in a meaningful way. Everyone else did, and this divergence ultimately led to the death of what was once the largest retailer in the world.
Why It Matters: The same lessons can be learned from the Sears bankruptcy as those learned from the Toys “R” Us and The Sports Authority bankruptcies: avoid slow-to-adapt retailers with a ton of debt. The e-commerce trend will likely only pick up steam in the 2020s. At the same time, interest rates will likely move higher. That will up how much these heavily indebted retailers will have to pay out each year in interest payments. Thus, if a heavily indebted physical retailer isn’t already rapidly changing their business to be more relevant, they likely won’t anytime soon.
As they did, consumers simply bought their CE devices at these mega retailers, because they could do so at the same time they were buying cosmetics products, doing grocery shopping, or buying clothes. RadioShack, who sold just CE devices and didn’t have the resources to expand much into other verticals, simply couldn’t compete.
Why It Matters: The “all-in-one” shopping model isn’t going anywhere anytime soon. Naturally, this model benefits mega retailers who can turn into one stop shops, and hurts niche retailers who do not have the expertise nor the resources to expand into one stop shops. Granted, many niche retailers can sustain a healthy business in this world — just see Best Buy (NYSE:BBY). But, for each retail vertical, there will only be a handful of niche retailers who do survive. The rest will go under as the retail world continues to consolidate.
As of this writing, Luke Lango was long WMT, NKE, FL, and BBY.