What Causes Stores to Close?


Quick Answer

Reduced profits, world or local economic conditions, and strong competitors are some factors that cause stores to close. A few other reasons include poor planning, the lack of a website and poor location.

Continue Reading
Related Videos

Full Answer

Reduced profit is a common cause for store closures. If a store yields low returns in comparison to its investment cost, inventory expenses and other business overhead expenses, then it runs on a low profit margin. If it becomes too difficult to repay the financier, eventually the store closes. Recession also leads to business shutdowns. Due to restrictions on purchasing capacity, customers refrain from buying often. Stores selling luxury and durable goods are the most affected in such economic conditions.

Stiff competition is another cause for stores to close. If a peer competitor continuously sells goods at a comparatively lower price or if a larger competitor produces better quality goods at market competitive rates than a small store, the latter may close due to poor market share. Lack of strategic planning in capital budgeting, marketing, problem management and resource allocation is another key factor that often leads to bankruptcy.

As Internet usage increases, if a store does not have a website for information sharing and promotional activities of their products, it may lose revenue. Starting a simple, user-friendly website boosts market visibility and profit. If a store is located in an area surrounded by the wrong customer base or if it has poor accessibility, it is prone to have fewer customers and low profits, which may ultimately result in closure.

Learn more about Corporations

Related Questions