What we can learn from brands that went bankrupt
I started my market research career at the Foods Division of Cadbury Schweppes. As I noted in my second book, Brand Premium, Cadbury Schweppes no longer exists as a company, but many of its brands do, indeed, brands are often the only asset to survive the vagaries of changing ownership. This is why brands are so valuable; brands survive as long as people remember them positively. So how come so many well-known brands end up bankrupt?
Bankruptcy is a clear signal that something is wrong
Owning a brand is not a guarantee of future earnings, brands must be nurtured to sustain their financial value, however, all too often new brand owners load their acquisition with debt, favor cost cutting over investing, and end up declaring the brand bankrupt. The problem is that this process can take many years, and by the end the brand may not be salvageable. Sometimes the problem is purely financial, the brand is still strong or has the potential to be so. In other cases, it is more systemic, and for one reason or another the brand is weak and unlikely to recapture its former glory.
Of course, bankruptcy (or entering administration as it is known in the UK) is not always the end of the story. In the US, filing for Chapter 11 allows a company to continue operations while it reorganizes and tries to put its business on a sound financial footing. Despite being a legitimate way to reset the financial clock, however, bankruptcy is a clear signal that there is something wrong somewhere, and even if it does not directly impact customers lives, the accompanying publicity often undermines perceptions of the brand.
Like other long-lived brands, Typhoo Tea was strangled by debt
My interest in the topic of why brands go bankrupt was rekindled when I learnt that Typhoo Tea, a brand I had once worked on at Cadbury Schweppes, had entered administration in the UK and had been acquired by vape firm Supreme in a deal worth £10.2m. This article in the Grocery Gazette titled, "Typhoo Tea new owner pledges turnaround after brand was 'strangled' by debt," sums up why Typhoo was forced into administration. With sales plummeting, losses more than trebled, and the company could no longer support its debt, in part imposed on it by its acquisition by Zetland Capital in 2021. Sadly, not an unusual story. Many long-lived and famous brands have suffered a similar fate.
Typhoo has faced strong headwinds for decades
In the early 1980s I was the person charged with conducting custom market research on behalf of the Typhoo brand team, and I must admit that my initial thought on hearing the news was, "Well, that's been a long time coming."
Even when I worked on the brand, Typhoo was the third biggest in the marketplace behind PG Tips and Tetley. Tea consumption was declining and has continued to do so, and private labels or store brands represented a constant threat. The launch of Typhoo Freshbrew, intended to appeal to younger tea drinkers, only served to dilute investment in the parent brand, and more recently, an aggressive push by the owners to supply supermarkets with own label teas probably further undermined the brand's fortunes.
An analysis of bankrupt brands using data from Kantar BrandZ
I last wrote about the topic of bankrupt brands in July of 2020 when the Covid pandemic was really starting to bite, but since then, I have had a chance to update an analysis of brands that become bankrupt thanks to my friends at Kantar BrandZ,Graham Staplehurst and Martin Guerrieria. In 2020, I highlighted the combination of weak consumer demand and high debt that so often causes a brand to fail, but this time I want to dig a little deeper to identify what might be done to rescue a brand that is showing weakness today, but which might still have a profitable future with the right attention.
What I have done is to cross reference brands that entered bankruptcy from 2015 to date against the BrandZ database. So far, I have found 57 brands. To be included, the brand had to trade under the same name as measured by BrandZ or be a parent company reliant on consumer-facing brands that were measured. As a result, the list includes several airlines, retailers, casual dining, and apparel brands. Importantly, all brands except one were included in BrandZ at least a year before they declared bankruptcy, if not much longer, so the consumer perceptions reported were not the result of the bankruptcy itself.
Before I dig into the consumer perception data, here are a few findings to set the scene.
Brands can be very resilient
Like Typhoo Tea, brands can survive a long time even in the face of adversity. Most brands suffered a prolonged period of slow decline, with that period lasting over ten years in about 2 in 5 cases. Long-term decline is often accompanied by multiple failed turnaround strategies, leadership and ownership changes. Unfortunately, most of the turnaround efforts tinker with the existing business model and often seem to take the customer demand for granted.
A minority of brands suffer rapid decline
About 1 in 4 brands suffered rapid decline triggered by acute events like the pandemic, sudden market shifts, or debt issues. If Covid had not pushed so many brands into bankruptcy, my list would be far shorter. The pandemic was the catalyst for 30 brands entering administration (about 1 in 2), although many of these brands already faced other challenges that preceded the pandemic.
Failure to adapt underlies the bankruptcy of many brands
Over 3 in 4 brands were slow to adjust effectively to an industry trend, be that instigated by technology or a change in consumer tastes. Sears was undermined by e-commerce and falling foot traffic in malls, Men's Wearhouse facing a shift to more casual workwear, and Pier 1 Imports not adapting to contemporary tastes. Many trends, like the shift to e-commerce and fast-casual dining, were a long time in the making, but it can be difficult to do anything substantive to address changes like those if a brand is already financially challenged.
Weak demand and high debt are a killer combination
Many cases on the list exhibit the same pattern of weak demand and high debt and it is notable how often a private equity company bought a brand and, in the process, accelerated the brand's demise by loading it with debt. A high debt burden undermines the brand's ability to invest in innovation or refresh its offering and positioning. Cost cutting often undermines the brand's ability to deliver a reasonable customer experience.
Perceived relevance and differentiation underpin weak demand
Bankrupt brands are more likely to lack perceived differentiation and relevance than salience. However, very few brands suffer from just one weakness, and, as we shall see, what might best address that weakness varies. However, weak attitudinal demand is often disguised by recourse to promotions and discounts, as a subset of people will always choose based on price not the brand itself.
Rearranging the deck chairs on The Titanic?
While I cannot prove it, I get the sense that many management teams assume the consumer will always be there to buy their brand provided they can fix the immediate business problems. Or perhaps it is simply that the immediate firefighting distracts them from more fundamental problems. However, weak consumer demand underlies the bankruptcy of 2 in 3 brands, so in the rest of the post I will examine what Kantar BrandZ can tell us about why brands suffer from weak demand, but first, it might help to understand what characterizes a strong brand.
Strong brands are perceived as meaningful, different, and salient
Brands with strong consumer demand are widely perceived by their potential buyers as meaningful, different, and salient. If you are unaware or uncertain of what these terms mean in the context of Kantar BrandZ, here is a quick primer, otherwise skip to the next paragraph.
So, what does my analysis suggest about the consumer perceptions of brands that end up filing for bankruptcy?
Many bankrupt brands lack perceived differentiation
1 in 3 of the bankrupt brands are averagely or strongly meaningful but are weak on perceived differentiation (this is the biggest group). These brands are characterized by below average consumer demand, average perceived price, but weak pricing power, i.e., consumer perceptions failed to justify the perceived price. Perceptions of these brands tend to be bland, with no big strengths, no big weaknesses.
A lack of differentiation leaves brands commoditized
Meaningful but undifferentiated brands are relevant to many but are likely commoditized. Middle of the road, regional department stores like Bon-Ton and Belk, or the women's apparel store Bonmarché in the UK, found it difficult to sustain revenues when people could find cheaper alternatives thanks to e-commerce and fast-fashion. Particularly for value brands, weak differentiation is a challenge. Low prices are the main source of differentiation, but when others match that pricing the brand will find its options limited. While struggling rather than bankrupt, Dollar General and Dollar Tree find themselves in this situation, and cutting costs is the only way to sustain cash flow, even if it undermines the shopper's experience.
If a brand lacks differentiation, the challenge is to find something that helps build that perception and which will resonate with the target audience. Remember, the source of differentiation may be either tangible or intangible. Tangible innovation may be the solution and is likely to produce the fastest results in combination with effective marketing, but so too might be refreshing the brand's positioning in a way that makes the brand feel more contemporary.
Difference can divide
The third largest group of bankrupt brands are those perceived as different by many, but which equally lack meaning for some. These brands are characterized by weak demand (because they tend to appeal to niche buyers), higher than average pricing, and reasonable pricing power. They tend to be seen as unique, distinctive, and well designed. That said, an average of 44% of potential buyers agree that the brand is worth less than it costs (compared to 34% for the preceding group).
Two choices when difference limits appeal
When a brand is perceived as different but lacks relevance a legitimate strategy might be to accept that the brand will never be relevant to everyone and instead focus on adding value for the specific audience to which the brand appeals. Alternatively, one could explore how the brand's perceived differentiation could be made meaningful to additional user groups. The challenge in doing so is to retain what made the brand attractive to the existing customers who are willing to pay for what the brand has to offer.
The Body Shop is a brand that might still be able to pursue the latter strategy. Bought by L'Oreal for £652m in 2006, L'Oreal then sold the firm to Brazilian beauty giant Natura in 2017 for £880m, The Body Shop changed hands again late last year when Aurelius, a private equity firm, acquired the company for £207m, shortly before bankruptcy. The Body Shop had a strongly differentiated offer during its early days founded on a commitment to ethically sourced, cruelty-free, and natural ingredients.
Despite the negative impact of changing ownership – for instance, L'Oreal moved manufacturing to the Philippines which meant better profit margins and resorted to discounting to drive sales – The Body Shop is still perceived as well-differentiated brand, but one that lacks both meaning and salience. So, the key question is can what the brand stands for be reframed to appeal to a wider audience? What changes need to be made to the product line up? What values and aesthetics need to be played up? What needs to be let go? Once the right mix is identified, then it will be time to build awareness of the new brand with an effective marketing campaign.
Weak meaning and difference signify the need for more drastic action
1 in 4 bankrupt brands are weak on both meaning and difference which results in them lacking both consumer demand and pricing power. Big pharmacy chains in the US by and large offer poor customer experience, but Rite Aid is weaker than most and declared bankruptcy in 2023 burdened by debt, challenged by new competition, and facing lawsuits over its alleged role in the opioid crisis. If a brand has weak meaning and difference, it is a clear signal that a drastic overhaul of the business model is required. Brands that find themselves in this category are often the ones that have failed to adapt to a major change in technology or tastes and it may simply be too late to turn things around.
A few of these brands have high salience, they are well-known, but their offer lacks relevance and may be commoditized. Brands with low meaning and difference but high salience include RadioShack, Avon, and apparel brand J. Crew. However, strong salience may signal a chance to revitalize a well-loved brand. J. Crew is a case in point. After 6 years of declining sales the brand entered bankruptcy in early 2020, emerging 6 months later having significantly reduced its debt burden. With a new CEO and creative director on board, the brand streamlined its operations, invested in its omni-channel retail infrastructure, refreshed its design aesthetic to extend its appeal while bringing back popular legacy items, and increased its digital, social, and influencer marketing, at the same time bringing back the brand's famous catalog. In 2024, the brand was reported to be on track for a record setting $3 billion in sales.
In cases where salience is also weak, there is little point in investing in marketing to build salience unless the brand's weaknesses really are just a matter of perception.
Not all bankrupt brands suffer from weak demand
Brands do not always enter bankruptcy because of weak demand. The brand may be strong, but the underlying financials are weak or suffer from an unforeseen event. 1 in 3 bankrupt brands qualify as having reasonably strong consumer demand as measured by Kantar BrandZ, suggesting that finances alone were to blame for the bankruptcy, not weak demand. A case in point would be Red Lobster, the US casual dining chain specializing in seafood.
Red Lobster had stronger than average demand
Red Lobster had strong demand and reasonable pricing power when measured in 2017, but which was forced to seek Chapter 11 in May 2024. Evidence of demand for the brand's offering does not just come from BrandZ. More recently, when the company turned its $20 endless shrimp promotion into a permanent menu item customer traffic was double what was expected, causing an $11 million loss. The origins of the brand's bankruptcy, however, lie further back in time.
In 2014, the Red Lobster had been sold to Golden Gate Capital, a private equity firm, which funded the deal using a sale leaseback agreement. This meant that the brand went from owning its own real estate locations to leasing them, with a consequent impact on the bottom line. At the same time, the casual dining sector was coming under pressure from cheaper fast-casual and quick-service restaurants. In 2020, Golden Gate Capital sold Red Lobster to one of its major suppliers, Thai Union Group, which is reported to have resorted to aggressive cost control to try and turn things around. Instead of fixing a problem, the cost cutting is reported to have further undermined the customer experience.
A chance of recovery?
Red Lobster exited Chapter 11 in September last year, and it remains to be seen if new management can redress the damage done to the brand in the preceding nine years. As mentioned, when the brand was last measured, demand was above average for the casual dining category, the brand's pricing power was adequate, and it was well-differentiated and meaningful to many compared to most other casual dining chains. (That is a very different profile from brands like TGIF and Ruby Tuesday which lacked differentiation and folded as soon as the pandemic hit.) However, the question to be answered is what action will give the brand its best chance of recovery? Is it refreshing the brand's menu and increasing marketing spend or does it require something more fundamental? Perhaps if Red Lobster could re-incarnate as a fast-casual restaurant it could then catch a rising tide instead of an ebbing one.
Takeaways
For many of these bankrupt brands it was business as normal until it wasn't. So, I think that my overall conclusion from this analysis is beware of blind spots, and the biggest blind spot is often the needs, wants, and desires of the people who buy the brand.
Anticipate the likely impact of emerging trends
This sounds like a trite piece of advice; however, it is amazing how many bankrupt brands do not respond to an emerging trend. If it sounds like an emerging trend might affect your business, do your homework. Who are the early adopters? Are the benefits they enjoy likely to appeal to a wider audience? How widespread is adoption likely to be and over what period? Remember, the change offers people more convenience or the same convenience at a cheaper price, it will likely generate widespread appeal. Wargame the likely impact on your business and, if negative, figure out what might mitigate that impact.
Build resilience in your business
Management teams face constant pressure to run a tight ship and deliver improved results quarter after quarter. However, if financial control is too tight it can limit a company's ability to respond to unforeseen events. Some shocks are just too great for even the strongest brand, when the pandemic took hold Aero Mexico and Hertz saw demand for their services disappear almost overnight, but it is tough to pivot effectively without pre-existing contingency plans and enough organizational slack to put those plans into effect. So, plan for the unforeseen and build resilience in your business and its financials.
Invest in the resilience of your brand
As I mentioned at the start of this post, brands survive as long as people remember them positively. J. Crew recovered from bankruptcy in part because it was remembered fondly by long-time fans and seems to have rekindled that affection, while reaching out to a new, younger audience. Strong brands are meaningful, different, and salient, so protect the customer experience, innovate to add value for your customers, and invest to grow your brand's salience. Kantar BrandZ consistently finds that strong brands recover their value quicker following unexpected shocks.
Act early when growth stalls
A quick deceleration followed by gradual decline is often a signal that something fundamental is wrong. Now is the time to turn things around, because if the situation is left to fester things will only get worse. Unfortunately, it is always possible to stave off the brand's ultimate demise with short-term fixes and discounting. Look beyond the immediate challenges, examine how the brand got into the current situation, identify the underlying problem and what can be done to remedy it.
Do not ignore your customer
Yes, the business basics need to be fixed, but so does the source of weak demand. Brand equity and tracking data can help identify whether demand for a brand is supported by consumer attitudes or not, and if there is a problem that research can signpost the solutions most worthy of exploration. As we have seen, weak demand can have different origins, you need to know which problem you are trying to solve. The next step is to spend time with your customers and really understand what might appeal to them. These are the people that you will need to buy your brand, make sure you understand their real motivations.
Do not try to cut your way to growth
If a brand is in decline, the answer to its problems is unlikely to be cost cutting. Balance cost control with investment in the brand experience. Once the fundamentals are fixed, then you need to invest in marketing to ensure that potential buyers know what is in it for them. Highlight how the new brand incarnation is going to add value to their lives, because otherwise, why are they going to spend their hard-earned money on your brand? Be prepared to invest in a significant increase in media spending, because you need to reach not just current customers but the disaffected as well.
Bankruptcy is a clear signal that something is wrong
Owning a brand is not a guarantee of future earnings, brands must be nurtured to sustain their financial value, however, all too often new brand owners load their acquisition with debt, favor cost cutting over investing, and end up declaring the brand bankrupt. The problem is that this process can take many years, and by the end the brand may not be salvageable. Sometimes the problem is purely financial, the brand is still strong or has the potential to be so. In other cases, it is more systemic, and for one reason or another the brand is weak and unlikely to recapture its former glory.
Of course, bankruptcy (or entering administration as it is known in the UK) is not always the end of the story. In the US, filing for Chapter 11 allows a company to continue operations while it reorganizes and tries to put its business on a sound financial footing. Despite being a legitimate way to reset the financial clock, however, bankruptcy is a clear signal that there is something wrong somewhere, and even if it does not directly impact customers lives, the accompanying publicity often undermines perceptions of the brand.
Like other long-lived brands, Typhoo Tea was strangled by debt
My interest in the topic of why brands go bankrupt was rekindled when I learnt that Typhoo Tea, a brand I had once worked on at Cadbury Schweppes, had entered administration in the UK and had been acquired by vape firm Supreme in a deal worth £10.2m. This article in the Grocery Gazette titled, "Typhoo Tea new owner pledges turnaround after brand was 'strangled' by debt," sums up why Typhoo was forced into administration. With sales plummeting, losses more than trebled, and the company could no longer support its debt, in part imposed on it by its acquisition by Zetland Capital in 2021. Sadly, not an unusual story. Many long-lived and famous brands have suffered a similar fate.
Typhoo has faced strong headwinds for decades
In the early 1980s I was the person charged with conducting custom market research on behalf of the Typhoo brand team, and I must admit that my initial thought on hearing the news was, "Well, that's been a long time coming."
Even when I worked on the brand, Typhoo was the third biggest in the marketplace behind PG Tips and Tetley. Tea consumption was declining and has continued to do so, and private labels or store brands represented a constant threat. The launch of Typhoo Freshbrew, intended to appeal to younger tea drinkers, only served to dilute investment in the parent brand, and more recently, an aggressive push by the owners to supply supermarkets with own label teas probably further undermined the brand's fortunes.
An analysis of bankrupt brands using data from Kantar BrandZ
I last wrote about the topic of bankrupt brands in July of 2020 when the Covid pandemic was really starting to bite, but since then, I have had a chance to update an analysis of brands that become bankrupt thanks to my friends at Kantar BrandZ,Graham Staplehurst and Martin Guerrieria. In 2020, I highlighted the combination of weak consumer demand and high debt that so often causes a brand to fail, but this time I want to dig a little deeper to identify what might be done to rescue a brand that is showing weakness today, but which might still have a profitable future with the right attention.
What I have done is to cross reference brands that entered bankruptcy from 2015 to date against the BrandZ database. So far, I have found 57 brands. To be included, the brand had to trade under the same name as measured by BrandZ or be a parent company reliant on consumer-facing brands that were measured. As a result, the list includes several airlines, retailers, casual dining, and apparel brands. Importantly, all brands except one were included in BrandZ at least a year before they declared bankruptcy, if not much longer, so the consumer perceptions reported were not the result of the bankruptcy itself.
Before I dig into the consumer perception data, here are a few findings to set the scene.
Brands can be very resilient
Like Typhoo Tea, brands can survive a long time even in the face of adversity. Most brands suffered a prolonged period of slow decline, with that period lasting over ten years in about 2 in 5 cases. Long-term decline is often accompanied by multiple failed turnaround strategies, leadership and ownership changes. Unfortunately, most of the turnaround efforts tinker with the existing business model and often seem to take the customer demand for granted.
A minority of brands suffer rapid decline
About 1 in 4 brands suffered rapid decline triggered by acute events like the pandemic, sudden market shifts, or debt issues. If Covid had not pushed so many brands into bankruptcy, my list would be far shorter. The pandemic was the catalyst for 30 brands entering administration (about 1 in 2), although many of these brands already faced other challenges that preceded the pandemic.
Failure to adapt underlies the bankruptcy of many brands
Over 3 in 4 brands were slow to adjust effectively to an industry trend, be that instigated by technology or a change in consumer tastes. Sears was undermined by e-commerce and falling foot traffic in malls, Men's Wearhouse facing a shift to more casual workwear, and Pier 1 Imports not adapting to contemporary tastes. Many trends, like the shift to e-commerce and fast-casual dining, were a long time in the making, but it can be difficult to do anything substantive to address changes like those if a brand is already financially challenged.
Weak demand and high debt are a killer combination
Many cases on the list exhibit the same pattern of weak demand and high debt and it is notable how often a private equity company bought a brand and, in the process, accelerated the brand's demise by loading it with debt. A high debt burden undermines the brand's ability to invest in innovation or refresh its offering and positioning. Cost cutting often undermines the brand's ability to deliver a reasonable customer experience.
Perceived relevance and differentiation underpin weak demand
Bankrupt brands are more likely to lack perceived differentiation and relevance than salience. However, very few brands suffer from just one weakness, and, as we shall see, what might best address that weakness varies. However, weak attitudinal demand is often disguised by recourse to promotions and discounts, as a subset of people will always choose based on price not the brand itself.
Rearranging the deck chairs on The Titanic?
While I cannot prove it, I get the sense that many management teams assume the consumer will always be there to buy their brand provided they can fix the immediate business problems. Or perhaps it is simply that the immediate firefighting distracts them from more fundamental problems. However, weak consumer demand underlies the bankruptcy of 2 in 3 brands, so in the rest of the post I will examine what Kantar BrandZ can tell us about why brands suffer from weak demand, but first, it might help to understand what characterizes a strong brand.
Strong brands are perceived as meaningful, different, and salient
Brands with strong consumer demand are widely perceived by their potential buyers as meaningful, different, and salient. If you are unaware or uncertain of what these terms mean in the context of Kantar BrandZ, here is a quick primer, otherwise skip to the next paragraph.
- A brand is defined as meaningful to someone if they rate that brand highly as both meeting their needs and as one they like. Along with salience, meaningful underpins demand for a brand.
- A brand is defined as different when someone rates it highly as setting the trends for its category or as being unique. Perceived differentiation underpins a brand's pricing power, provided people see that differentiation to be meaningful. Perceived differentiation is not the same as distinctiveness, although they can be related.
- A brand is salient when it comes easily to mind in the category context. It is a measure of mental availability and as such underpins strong demand.
So, what does my analysis suggest about the consumer perceptions of brands that end up filing for bankruptcy?
Many bankrupt brands lack perceived differentiation
1 in 3 of the bankrupt brands are averagely or strongly meaningful but are weak on perceived differentiation (this is the biggest group). These brands are characterized by below average consumer demand, average perceived price, but weak pricing power, i.e., consumer perceptions failed to justify the perceived price. Perceptions of these brands tend to be bland, with no big strengths, no big weaknesses.
A lack of differentiation leaves brands commoditized
Meaningful but undifferentiated brands are relevant to many but are likely commoditized. Middle of the road, regional department stores like Bon-Ton and Belk, or the women's apparel store Bonmarché in the UK, found it difficult to sustain revenues when people could find cheaper alternatives thanks to e-commerce and fast-fashion. Particularly for value brands, weak differentiation is a challenge. Low prices are the main source of differentiation, but when others match that pricing the brand will find its options limited. While struggling rather than bankrupt, Dollar General and Dollar Tree find themselves in this situation, and cutting costs is the only way to sustain cash flow, even if it undermines the shopper's experience.
If a brand lacks differentiation, the challenge is to find something that helps build that perception and which will resonate with the target audience. Remember, the source of differentiation may be either tangible or intangible. Tangible innovation may be the solution and is likely to produce the fastest results in combination with effective marketing, but so too might be refreshing the brand's positioning in a way that makes the brand feel more contemporary.
Difference can divide
The third largest group of bankrupt brands are those perceived as different by many, but which equally lack meaning for some. These brands are characterized by weak demand (because they tend to appeal to niche buyers), higher than average pricing, and reasonable pricing power. They tend to be seen as unique, distinctive, and well designed. That said, an average of 44% of potential buyers agree that the brand is worth less than it costs (compared to 34% for the preceding group).
Two choices when difference limits appeal
When a brand is perceived as different but lacks relevance a legitimate strategy might be to accept that the brand will never be relevant to everyone and instead focus on adding value for the specific audience to which the brand appeals. Alternatively, one could explore how the brand's perceived differentiation could be made meaningful to additional user groups. The challenge in doing so is to retain what made the brand attractive to the existing customers who are willing to pay for what the brand has to offer.
The Body Shop is a brand that might still be able to pursue the latter strategy. Bought by L'Oreal for £652m in 2006, L'Oreal then sold the firm to Brazilian beauty giant Natura in 2017 for £880m, The Body Shop changed hands again late last year when Aurelius, a private equity firm, acquired the company for £207m, shortly before bankruptcy. The Body Shop had a strongly differentiated offer during its early days founded on a commitment to ethically sourced, cruelty-free, and natural ingredients.
Despite the negative impact of changing ownership – for instance, L'Oreal moved manufacturing to the Philippines which meant better profit margins and resorted to discounting to drive sales – The Body Shop is still perceived as well-differentiated brand, but one that lacks both meaning and salience. So, the key question is can what the brand stands for be reframed to appeal to a wider audience? What changes need to be made to the product line up? What values and aesthetics need to be played up? What needs to be let go? Once the right mix is identified, then it will be time to build awareness of the new brand with an effective marketing campaign.
Weak meaning and difference signify the need for more drastic action
1 in 4 bankrupt brands are weak on both meaning and difference which results in them lacking both consumer demand and pricing power. Big pharmacy chains in the US by and large offer poor customer experience, but Rite Aid is weaker than most and declared bankruptcy in 2023 burdened by debt, challenged by new competition, and facing lawsuits over its alleged role in the opioid crisis. If a brand has weak meaning and difference, it is a clear signal that a drastic overhaul of the business model is required. Brands that find themselves in this category are often the ones that have failed to adapt to a major change in technology or tastes and it may simply be too late to turn things around.
A few of these brands have high salience, they are well-known, but their offer lacks relevance and may be commoditized. Brands with low meaning and difference but high salience include RadioShack, Avon, and apparel brand J. Crew. However, strong salience may signal a chance to revitalize a well-loved brand. J. Crew is a case in point. After 6 years of declining sales the brand entered bankruptcy in early 2020, emerging 6 months later having significantly reduced its debt burden. With a new CEO and creative director on board, the brand streamlined its operations, invested in its omni-channel retail infrastructure, refreshed its design aesthetic to extend its appeal while bringing back popular legacy items, and increased its digital, social, and influencer marketing, at the same time bringing back the brand's famous catalog. In 2024, the brand was reported to be on track for a record setting $3 billion in sales.
In cases where salience is also weak, there is little point in investing in marketing to build salience unless the brand's weaknesses really are just a matter of perception.
Not all bankrupt brands suffer from weak demand
Brands do not always enter bankruptcy because of weak demand. The brand may be strong, but the underlying financials are weak or suffer from an unforeseen event. 1 in 3 bankrupt brands qualify as having reasonably strong consumer demand as measured by Kantar BrandZ, suggesting that finances alone were to blame for the bankruptcy, not weak demand. A case in point would be Red Lobster, the US casual dining chain specializing in seafood.
Red Lobster had stronger than average demand
Red Lobster had strong demand and reasonable pricing power when measured in 2017, but which was forced to seek Chapter 11 in May 2024. Evidence of demand for the brand's offering does not just come from BrandZ. More recently, when the company turned its $20 endless shrimp promotion into a permanent menu item customer traffic was double what was expected, causing an $11 million loss. The origins of the brand's bankruptcy, however, lie further back in time.
In 2014, the Red Lobster had been sold to Golden Gate Capital, a private equity firm, which funded the deal using a sale leaseback agreement. This meant that the brand went from owning its own real estate locations to leasing them, with a consequent impact on the bottom line. At the same time, the casual dining sector was coming under pressure from cheaper fast-casual and quick-service restaurants. In 2020, Golden Gate Capital sold Red Lobster to one of its major suppliers, Thai Union Group, which is reported to have resorted to aggressive cost control to try and turn things around. Instead of fixing a problem, the cost cutting is reported to have further undermined the customer experience.
A chance of recovery?
Red Lobster exited Chapter 11 in September last year, and it remains to be seen if new management can redress the damage done to the brand in the preceding nine years. As mentioned, when the brand was last measured, demand was above average for the casual dining category, the brand's pricing power was adequate, and it was well-differentiated and meaningful to many compared to most other casual dining chains. (That is a very different profile from brands like TGIF and Ruby Tuesday which lacked differentiation and folded as soon as the pandemic hit.) However, the question to be answered is what action will give the brand its best chance of recovery? Is it refreshing the brand's menu and increasing marketing spend or does it require something more fundamental? Perhaps if Red Lobster could re-incarnate as a fast-casual restaurant it could then catch a rising tide instead of an ebbing one.
Takeaways
For many of these bankrupt brands it was business as normal until it wasn't. So, I think that my overall conclusion from this analysis is beware of blind spots, and the biggest blind spot is often the needs, wants, and desires of the people who buy the brand.
Anticipate the likely impact of emerging trends
This sounds like a trite piece of advice; however, it is amazing how many bankrupt brands do not respond to an emerging trend. If it sounds like an emerging trend might affect your business, do your homework. Who are the early adopters? Are the benefits they enjoy likely to appeal to a wider audience? How widespread is adoption likely to be and over what period? Remember, the change offers people more convenience or the same convenience at a cheaper price, it will likely generate widespread appeal. Wargame the likely impact on your business and, if negative, figure out what might mitigate that impact.
Build resilience in your business
Management teams face constant pressure to run a tight ship and deliver improved results quarter after quarter. However, if financial control is too tight it can limit a company's ability to respond to unforeseen events. Some shocks are just too great for even the strongest brand, when the pandemic took hold Aero Mexico and Hertz saw demand for their services disappear almost overnight, but it is tough to pivot effectively without pre-existing contingency plans and enough organizational slack to put those plans into effect. So, plan for the unforeseen and build resilience in your business and its financials.
Invest in the resilience of your brand
As I mentioned at the start of this post, brands survive as long as people remember them positively. J. Crew recovered from bankruptcy in part because it was remembered fondly by long-time fans and seems to have rekindled that affection, while reaching out to a new, younger audience. Strong brands are meaningful, different, and salient, so protect the customer experience, innovate to add value for your customers, and invest to grow your brand's salience. Kantar BrandZ consistently finds that strong brands recover their value quicker following unexpected shocks.
Act early when growth stalls
A quick deceleration followed by gradual decline is often a signal that something fundamental is wrong. Now is the time to turn things around, because if the situation is left to fester things will only get worse. Unfortunately, it is always possible to stave off the brand's ultimate demise with short-term fixes and discounting. Look beyond the immediate challenges, examine how the brand got into the current situation, identify the underlying problem and what can be done to remedy it.
Do not ignore your customer
Yes, the business basics need to be fixed, but so does the source of weak demand. Brand equity and tracking data can help identify whether demand for a brand is supported by consumer attitudes or not, and if there is a problem that research can signpost the solutions most worthy of exploration. As we have seen, weak demand can have different origins, you need to know which problem you are trying to solve. The next step is to spend time with your customers and really understand what might appeal to them. These are the people that you will need to buy your brand, make sure you understand their real motivations.
Do not try to cut your way to growth
If a brand is in decline, the answer to its problems is unlikely to be cost cutting. Balance cost control with investment in the brand experience. Once the fundamentals are fixed, then you need to invest in marketing to ensure that potential buyers know what is in it for them. Highlight how the new brand incarnation is going to add value to their lives, because otherwise, why are they going to spend their hard-earned money on your brand? Be prepared to invest in a significant increase in media spending, because you need to reach not just current customers but the disaffected as well.
No matter what the challenges, it is far easier to manage a growing brand than one that is in decline. However, as brands like Disney, Delta, and Adidas have shown in the past, it is possible for brands to regain their momentum, even if the process might need to be revisited periodically. When it comes to brands, the new normal should never be taken for granted.
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