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Total Recall

Businesses fail to learn from failed business ventures of the past, editorial by Kathy Burger, Editorial Director.

Stick around long enough, and you start to have regular deja vu experiences. Lately, I'm feeling more and more as if I'm covering developments on which I'd already reported at earlier stages of my career. In the current weak economic environment, with a new Chapter 11 or massive staff lay-off plan announced every day, I'm having flashbacks to my stint covering discount retailing in the mid-1980s. I reported on the catalog showroom industry, a segment marked by "every-day low prices"—at the time, a novel concept. By promoting loss leaders in consumer electronics and housewares, catalog showrooms got consumers into their stores, where they then would be enticed to buy jewelry. That's where they actually made all their money. Theconcept worked beautifully in the '70s and early '80s, and catalog showroom firms were stock market darlings.

Then things started to go wrong. Gold prices were in the $1,000-an-ounce range, which not only affected margins; it created a credibility problem for the retailers, which had committed to low prices in catalogs and flyers printed months in advance. Worse, a new breed of upstart retailer, which also offered low-prices but enhanced the discounts with quality service, in-stock selection and a wider array of merchandise (read Wal-Mart), was aggressively presenting shoppers with an attractive alternative. The catalog showroom industry entered a spiral of store closings, Chapter 11s, and mergers. Last month Service Merchandise, the biggest (and last?) player in the segment, announced it was shutting down for good.

The woeful tale of Kmart shows history does repeat itself. Why don't businesses—whether they are retailers or financial institutions—ever learn? Companies still don't listen to customers; they don't anticipate/preempt new competition; they don't accept that tough times follow booms. If you disagree, I'll be happy to relate my experiences reporting on real estate circa 1980, when I quoted a mortgage banker who told me, "We'll never see single-digit mortgage rates again!" In business, as in life, never say never.

Katherine Burger is Editorial Director of Bank Systems & Technology and Insurance & Technology, members of UBM TechWeb's InformationWeek Financial Services. She assumed leadership of Bank Systems & Technology in 2003 and of Insurance & Technology in 1991. In addition to ... View Full Bio

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