Tesla, Victoria's Secret, Payless and Other Retail Closures: What Happened?

A rash of retail closures this week adds to the succession of legacy brands losing market share to Amazon and other disruptive market forces, like the drawn-out, sputtering death of mall department stores.

Brands either aren’t prepared to court an ecommerce-favoring customer base, or they’re shuttering their brick-and-mortar outlets because they actually have the wherewithal to offer a superior retail experience online, as Tesla claims.

Others simply end up alienating their brand identity à la Sears, or feign oblivion to the changing tastes of their core customers - Victoria’s Secret, we’re looking at you.  

Here we examine the top three catastrophic store closures of the month:

Tesla, trying to cut costs, shifts to online-only sales

Tesla rocked the retail industry this week by announcing that it would be shuttering most of its stores and selling its high-end electric vehicles exclusively online. While most prospective buyers comparison-shop online, the missing try-before-you-buy proposition can be a dissuading factor for would-be online shoppers, especially for a major investment like a car.

The automaker is looking to shed costs to bring a cheaper Model 3 to market at a $35,000 price point to make it accessible to more customers. The spending cutbacks from store closures and 30 percent lower manufacturing costs have allowed the company to inch back its prices across the board by about 6 percent.

In a company-wide email to employees in January, Tesla CEO Elon Musk billed the Model 3 “a critical step in Tesla’s mission to accelerate the world’s transition to sustainable energy.” Customers who purchase a Tesla online will have up to a week to return the car.

To ease initial qualms of buying such an expensive item online without being able to test drive it beforehand, the company bragged in a blog post that it would make returns so easy for customers that: “Quite literally, you could buy a Tesla, drive several hundred miles for a weekend road trip with friends and then return it for free."

However, unlike the scourge of deodorant-stained prom dresses being returned the morning after, Musk is banking on the Model 3 boasting the “highest consumer satisfaction score of any car on the road” as a buffer against excessive returns.

Overly stringent return policies can hurt a company’s revenue, but it’s a well-known fact that cars depreciate the moment you leave the dealer, which begs the question of how much Tesla will have to pay for “restocking” fees and whether returned items will be sold at a discount. There’s a reason why most dealers make it virtually impossible for remorseful buyers to return cars.

Making a brazen effort to recast the store closures as a customer experience gain rather than a cost-cutting measure, Tesla is emphasizing the convenience factor of buying online.

Announcing the Model 3, Tesla wrote in the company blog: “You can now buy the Tesla in North America via your phone in about one minute, and that capability will soon be extended worldwide. We are also making it easier to try out and return a Tesla, so that a test drive prior to purchase isn’t needed. You can now return a car within 7 days or 1,000 miles for a full refund.”

Since its founding in 2003, Tesla has struggled to make its cars, batteries and solar products cost competitive with environmentally destructive fossil fuels, earning its first profit in Q4 2018.

Before the Model 3, Tesla’s cheapest offering was the Model S, starting at $85,000. While the company did not disclose how many stores would be shut, it affirmed that it would maintain some of the “high-traffic” venues as “showrooms and information galleries.”

Victoria’s Secret loses customers to more down-to-earth brands, closes 53 stores

The decline of Victoria’s Secret is like watching Kodak dissolve all over again. Failing to adapt to consumer demand for more custom-fitted bras and inclusive messaging and advertising, Victoria’s Secret sales fell 5.14 percent in Q1 2019, while same-store sales declined 3 percent in the holiday quarter. Analysts say women are deserting the brand for lingerie startups like Adore Me and ThirdLove, which use real women in their ads rather than push-up bra-wearing, rail-thin celebrity models.

It’s not the first time customers have felt alienated by the airbrushed Victoria’s Secret aesthetic. In 2014, the brand was heavily criticized for its ‘The Perfect Body’ ad featuring ten leggy models, some with their rib cages showing.

Brands like Lane Bryant, which made a concerted effort to use non-photoshopped, plus-sized models, have changed marketing trends in lingerie, but for Victoria’s Secret to pivot this late in the game after its legacy of being associated with the top supermodels might come across as artificial.

The brand is closing 53 stores this year, in addition to the 30 stores it shuttered last year.

Payless fails to adapt to ecommerce, files for bankruptcy

Similar to the story behind the ongoing spate of mall department store closures, discount shoe retailer Payless ShoeSource relied too heavily on its brick-and-mortar footprint and is now facing the consequences.

The brand filed for bankruptcy in late February and is closing all 2,500 of its stores in the US and Puerto Rico, with $740 million in outstanding debt. Payless is also ceasing its online sales.

The brand struggled to compete with online bargain stores like Amazon and Zappos, which sell marked-down versions of pricey name-brands, while the Payless proposition has always been cheap, cheaply made, and widely available, with little effort to revitalize the retail experience. In an article on Vox, writer Kaitlyn Tiffany compared the Payless store aesthetic to that of an “optometrist’s office.”

Last November, the foundering brand engaged in a misguided PR stunt in a bid to recapture customers. Payless anonymously invited influencers to a launch party for a fake luxury shoe brand, Palessi, the supposed brainchild of fictional Italian designer Bruno Palessi.

A former Armani store in Los Angeles displayed the brand’s $20 shoes and $40 boots on glass shelves, while a red carpet ran the length of the room between gold mannequins and winged angel statues. The shoes were “auctioned” off at inflated prices ranging from $200-$600, until the brand revealed the catch: “We were just joking!”

While the brand was clearly attempting to make fun of itself (Payless but Palessi, geddit?) the stunt was an overt lampooning of today’s image-conscious fashion influencer culture, where customers can be duped into overpaying for cheap shoes just because of a European-sounding name and the presence of Instagram stars clutching champagne flutes.