Reality Bites: 2017 and the Crazy Eddie Effect

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Reality Bites: 2017 and the Crazy Eddie Effect

By Joe Skorupa - 01/10/2017

By Joe Skorupa

Troubles are mounting for retailers caught flat-footed by the fast pace of change. Holiday sales in 2016 were robust, but bypassed struggling retailers. The Limited shuttered its stores. Macy’s closed between 68 and 100 stores depending on who’s counting. Sears continued a slow death spiral. And bad news came from Kohl’s, JCPenney, Nasty Gal, Aeropostale and more. It looks like a case of the “Crazy Eddie Effect” all over again.

Don’t you think it’s time to stop blaming bad financial performance on the gravitational pull of Amazon, Walmart and an ever-expanding wave of startups? Some retailers even tried blaming the Presidential election! Instead, I propose blaming the “Crazy Eddie Effect.”

(Note that the following insights and findings are examined fully in the 2017 RIS/IHL Store Systems Study.)

Yes, Crazy Eddie Was Insane

There was a time when  the consumer electronics segment was the hottest thing in retail. More than a dozen retail chains emerged throughout the country and blanketed the airwaves with the most annoying TV commercials ever made. In the New York City area, Crazy Eddie was the chief offender. His commercials promised “insane prices” and “Christmas in July.”
At its peak, Crazy Eddie generated $300 million in revenue and sales were climbing. But Eddie Antar eventually led his company into liquidation for one very simple reason: while the company moved huge volumes of products at lightning speed, which is usually perceived as a good thing in retail, it did so at a loss. The faster products moved the more debt the chain piled up and no plan was ever put in place to close the gap.
A similar situation is occurring in the area of investment by mainstream retailers compared to retail leaders. While retail leaders are funding investments that break barriers, drive innovation, and bristle with advanced technology, the rest of the pack continues to aim for incremental improvements and invest at traditional levels, i.e. low levels. What’s missing is a plan to close the gap.
Unfortunately, this is all too similar to the losing game played by Crazy Eddie. There are different kinds of debt. In this case, the debt is measured by the distance that laggards are falling behind market leaders. No matter how hard laggards try, if they don’t close the gap soon (i.e. erase the debt they are piling up) it will increase over time and become unsustainable.
In the just released RIS/IHL 2017 Store Systems Study we asked retailers what amount of increase it would take in their IT budgets would to catch up to fast-moving retail leaders (who we identified as Amazon and Walmart to provide clear targets). The answer we uncovered was astounding. On average, retailers said it would take an increase of 65% in year-over-year IT investment to close the gap.

When we filtered out all retailers except those we identified as leaders we discovered that the leaders are increasing their IT budgets 232% more than the rest of the retail industry.

Eddie Antar never developed a solid plan to close Crazy Eddie's gap other than to personally steal as much money as possible before his house of cards folded. Not a good plan. He was caught and went to jail.

The question retailers have to ask themselves is: Can we catch leaders who are moving away from us faster than the speed we are chasing?

Those who continue with a program of incremental improvements, multi-year strategies and traditional IT investment levels in 2017 will watch their organizations slip into something akin to the “Crazy Eddie Effect” and it won’t be pretty. Bold steps and investments are required to compete today at the speed of modern retail.

To find out more about these findings plus many others in the 2017 RIS/IHL Store Systems Study click here.

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