Free Essay: Effects of the Closure of Big Corporate Businesses on the Economy and Community

Big name companies such as Sears, JC Penny and Macy encounter problems related to sales and new customer acquisitions. These problems affect the overall performance of the companies including their inventory turnovers, revenues, and market coverage among others which ultimately affects their lifespan. If necessary steps are not applied, such firms resort to closure thereby impacting their economies and communities at large in various ways. Some of the problems that such companies experience in line with sales and customer acquisition include; failure of the businesses to hit their overall sales quota, deals taking longer than expected to close and losing deals on prices. Others include too much discounting, failure of the retailers to understand the client's perspective and chasing of poorly qualified leads among others (Barrett).

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Problems the companies have been experiencing.

Sears, JC Penny and Macy's have been experiencing shortcomings that affect their operations and significantly contribute to their overall underperformance. According to Haylay Peterson, things are not looking good for Sears and is experiencing managerial problems among others. The company has been shutting down dozens of its Kmart stores from 2016 with two of its highest-ranking executives leaving the company including the vice president Jeff Balagna and the president Joelle Maher (Peterson). The former vice president of the company Jeff Balagna left the company saying that he intends to "focus on his other business interests and pursue other career opportunities." The company has also been experiencing intense competition from other well-established brands such as Amazon and Zara which explore the cyber space market.

JC Penny is also experiencing sluggish growth in sales and is closing its stores making it smaller with time. According to Mourdoukoutas, investors are bailing out from the company's stock that is trading in the middle single digits. The company changed from the old pricing strategy and replaced with coupon sales that provided everyday low prices. This shift to new pricing strategy made the shoppers feel less smart and did not encourage them to talk with other consumers about it (Mourdoukoutas). The result is a low hype and buzz for the merchandise within the shopper community. Moreover, Amazon and other online retailers have continually chipped away sales from the traditional retailers making it cumbersome for JC Penny to recoup its initial customers. According to McGrath, JCP continues to focus on the shrinking middle class, and it's, therefore, reasonable enough to conclude that their sales will also continue to shrink.

Macy has also been experiencing a significant downfall causing its stock price to fall for a while now. The sales problem has been persistent due to various reasons making it difficult for the departmental stores to realize their targeted profits. The company announced its plans to close over 100 stores after its stock price fell by 15% in the first quarter of 2016 (Paridhi). Various reasons contribute to Macy's decline in product sales and market share. Some of them include competition from established fashion companies like H&M, Zara and Forever 21 that are rapidly taking away the market share due to their ability to bring into place new designs and styles within short time intervals at low production costs. Other companies such as TJ Maxx are also providing high quality merchandise at favorable prices thereby attracting a lot of store retailers. The E-commerce platform is a game changer in the industry making it difficult for Macy to reach out to its customers. Sears, JC Penny, and Macy are therefore faced with significant problems of consumer traffic, loss of premiere positioning and excessive positioning with a focus on the off-price business (Schlossberg).

Closing stores come along with adverse effects not only to the companies but also to the country's economy as well as the community in which they are located.

Impact on the community.

Effects on the consumers.

Consumers are brand loyal. In this case, closing the stores doesn't mean the loss of the customers since in many cases, the loyal fans will travel farther to visit a store they like that resembles the one that closed close to them. According to Kline, loyal consumers were willing to travel additional 4.3 miles to the next-closest Kmart store that was open while Macy's fans were ready to go 2 miles further just to shop at another Macy's open store. Moreover, the existing Kmart stores experienced a 39% increase in their market share, while Macy's experienced a 36% gain. However, there are limits to this since it adds a burden to the consumers making them feel the impact of store closures.

Effects on employees and their families.

The employee community also suffers significantly due to the closures. According to O'Neal, losing a job is one of the most stressful events in one's life. The consequences to the employees, their families and their communities' at large stretch far beyond mental and physical health problems, loss of health insurance and regular pay that can bring about economic and family issues. Some of the effects on the employee community include:

Loss of job opportunities.

Closure of the three companies would result in laying off of many employees who were working in the stores. The retail sector employs about 10 percent of all the working Americans. According to the labor department, the industry is shedding 6,100 positions in June this year. Employment on the departmental stores like JC Penny and Sears has steadily reduced by 46 percent. Between October 2016 and April 2017, an estimated 89,000 employees working in the "general merchandise" stores were laid off (Velasco). Such a decline puts the most vulnerable members of the workforce at very high risk. This may not be a glamorous step since these jobs are a source of livelihoods for millions of people.

Lower living standards.

Business closure results in adverse effects among them being a loss of a steady paycheck. The income of a spouse or partner in some employee families helps to prevent the catastrophic economic consequences that come as a result of job loss. For those who live from paycheck-to-paycheck, loss of pay or monthly income results into low standards of living. Moreover, unemployment insurance provides less compensation compared to what the employee may have been used to making it cumbersome to pay bills. The employees working in Sears, JC Penny and Macy's closed stores will be forced to find new job opportunities to maintain their levels of lifestyle or establish means of adapting to lower living standards. They might end up losing their homes (O'Neal).

Mental impact

An employee that hears of future business closure and the impending loss of income would provide constant worry to the family at large. Such concerns would be attributed to the thoughts on how to pay the bills and maintain their usual lifestyle. The ideas on how to tell a spouse and family about the impending loss are also stressful. According to the University of New York, an employee who declines his/her job and has not engaged in any fault of his own has a probability greater than 83 percent of ending up with stress-related psychiatric problems. The acts of companies such as Sears, JC Penney and Macy's of closing down their stores results in involuntary unemployment to their staff. This makes them feel vulnerable, scared and lonely. The result is a mixed feeling of hopelessness and uselessness which can significantly contribute to depression (O'Neal).

Physical effects

A study by Yale University in 2006 found that involuntary loss of a job and income increases the risk of a heart attack or stroke by 200 percent in an old worker as well as arthritis and stress-related diabetes. Another study conducted by Columbia University found that men with high-seniority positions have a more than 50 percent risk of death in the year after losing a job than other employed men in similar job positions. In this case, old employees working in Sears, JC Penny and Macy's are at a higher risk of getting physical health problems.

Loss of insurance covers.

Many employees, especially those with children, stand losing health insurance covers in the event of loss of their jobs, which might be another contributing factor to the increase in their stress levels. The families of laid-off employees from Sears, JC Penney, and Macy's are therefore at a more significant health risk. Being uninsured, especially for long periods would come along with its associated effects regarding the medical premiums paid and the type of medical cover in place. Given the high medical costs, some employees would be less likely to seek medical attention in the event of sickness or visit a doctor for preventive Medicare. By the family seeks medical care, the problem would have escalated to uncontrollable state that would require costly medication or surgery (O'Neal).

Economic impact

Sears, JC Penney, and Macy's are big and well-established corporate businesses in America. Closure of these companies' stores would not only affect the employee and consumer communities, but also the economies of the states in which they operate, and the country at large would be changed in various ways.

Reduction in taxes issued to the state.

Closure of stores results in limited market coverage. As the companies strive to reduce their operating expenses regarding wages through staff lay-offs, the amount deducted in the form of tax on the employee salaries reduces significantly. Moreover, the reduced market coverage by the companies' results in an equivalent reduction in sales hence fewer revenue taxes remitted to the government. The long-term effect of this is inadequate funds available to the state to enable it to provide the communities with the required amenities, i.e. educational, medical and infrastructural facilities (Kline).

Slow economic growth within the states.

Loss or employment of the laid-off employees from the companies' means a reduction in the disposable income for them hence fewer funds will be available to invest and make the essential purchases. The result is a reduction of sales to the local business which would ultimately slow the region's economic growth levels (Kline).

References

Barrett, S. (2014). What were the top 13 sales issues for businesses in 2014? - SmartCompany. [online] SmartCompany. Available at: https://www.smartcompany.com.au/marketing/sales/what-were-the-top-13-sales-issues-for-businesses-in-2014/ [Accessed 22 Mar. 2018].

McGrath, R. (2013). J.C. Penney's Real Problem: The Shrinking Middle Class. [online] Harvard Business Review. Available at: https://hbr.org/2013/04/jc-penneys-real-problem [Accessed 22 Mar. 2018].

Mourdoukoutas, P. (2017). Forbes Welcome. [online] Forbes.com. Available at: https://www.forbes.com/sites/panosmourdoukoutas/2017/02/24/a-strategic-mistake-that-still-haunts-jc-penney/#212f7f771bcf [Accessed 22 Mar. 2018].

O'Neal, L. (2018). The Impact of Business Closures on Employees. [online] Smallbusiness.chron.com. Available at: http://smallbusiness.chron.com/impact-business-closures-employees-42056.html [Accessed 22 Mar. 2018].

Paridhi (2016). Macy's business challenges and what they can do overcome them. [online] J469.ascjclass.org. Available at: http://j469.ascjclass.org/2016/12/09/macys-business-challenges-and-what-they-can-do-overcome-them/ [Accessed 22 Mar. 2018].

Peterson, H. (2016). Sears is on the brink of catastrophe as store closures loom and top execs flee the company. [online] Business Insider. Available at: http://www.businessinsider.com/sears-problems-loom-large-2016-12?IR=T [Accessed 22 Mar. 2018].

Schlossberg, M. (2016). Macy's new CEO has 3 major problems to solve. [online]...