Recently, travel giant Thomas Cook collapsed into liquidation, resulting in the stranding of thousands of holidaymakers and a considerable loss of jobs.
Thomas Cook wasn’t the first recognisable brand to fall by the wayside. Today, the news is full of the names of much-loved companies followed by terms such as administration, compulsory liquidation and Company Voluntary Arrangement, proving that despite having a devoted customer base and a catchy slogan, no company is immune to the risks of insolvency. Those loyal to the unlucky brands often ask why their favourites are disappearing, so here are some reasons why even our most iconic companies may find themselves struggling to cover their debts.
Not Adapting to Market Changes
A line you’ll see mentioned continuously in news articles when companies enter insolvency is that they “didn’t adapt to changes in the market”. In the last decade, there has been an unprecedented rise in online shopping and media consumption. Whether it’s failing to scale back high-street operations to concentrate on their online presence or not offering consumers a better reason to visit their shop, many businesses have failed to adapt to these changes. The failing of outlets such as Blockbuster, HMV, Maplin and Toys R Us, are examples of failure to adapt to emerging online markets. While Thomas Cook stuck to a high-street structure focusing on all-inclusive package holidays, an increasing number of holidaymakers are becoming their own travel agents; booking bespoke trips using multiple providers, often for a lower price.
Not Standing Out from the Competition
Likewise, markets such as airlines and grocery shopping have seen a rise in lower-cost alternatives appear and take a sizable chunk out of the market. Supermarkets like Aldi and Lidl are causing trouble for the larger, more established chains.
While established airline brands like Monarch Airlines have gone under, unable to compete with, or offer anything Ryanair and EasyJet couldn’t for a fraction of the price.
Internal Issues
Changing markets can harm a business, but they aren’t always the sole contributor to a large company’s financial troubles. Sometimes the reasons for failure are less to do with markets and more to do with director’s conduct; funds may have been misused, either as a result of poor planning, malicious intent, or high-ranking staff taking more in salary and dividends than the company could afford to pay them.
One of the most infamous insolvency cases of recent years was British Home Stores (BHS) in 2016. Which, on top of falling sales and a brand that customers considered outdated, had a highly publicised deficit in its pension scheme. Before this, the previous owner sold the company for £1 to a new chief executive who had twice been declared bankrupt.
Events beyond their control
While a lot of companies need to look inwards to find the reason for their insolvency, sometimes a series of external events beyond the company’s control conspire to destroy it. Case and point: Pan American World Airways (Pan-Am). America’s former flag-carrying airline was renowned in the 1960s for its comfort and bespoke service.
However, from the 1970s, Pan-Am was hit by a series of events that damaged the brand. Airlines were deregulated in the USA, meaning an increase in competition. There was a rise in oil prices, the company had to sell its pacific routes, the Gulf War and Chernobyl accident hurt its profits, and several of its planes were involved in accidents and terror incidents.
One of these events on its own would have hurt the brand, but all of them combined led to Pan-Am’s collapse in 1991.
Summary
Although there’s a lot to be said for brand loyalty and recognition, even the most prominent companies aren’t immune to insolvency or pressure from creditors. Companies are continually evolving and adapting their services to offer something their competitors don’t. The market is always in flux and companies need to change to stay relevant. Internal operations and any issues around those can also play a significant role in the health of the company. But despite all the planning to avoid these issues, sometimes events beyond a company’s control can damage them to such an extent that it’s impossible to recover.