5 Big Companies' Biggest Blunders

By Janet Fowler | May 27, 2011 AAA
5 Big Companies' Biggest Blunders

It's a simple fact that trends come and go. Consumer wants and needs change over time, and companies must constantly evolve and adapt to survive. Companies that do this well can weather the economic booms and busts, and potentially thrive throughout the years. But what about when a company's poor decisions or lack of ability to evolve ultimately lead to its own decline? There's a virtually endless list of businesses that have either gone bust completely, or been bought up by other companies - living on in name alone.
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1. Atari
Atari was the forerunner of the video game market through the 1970s and early 1980s. The company was known for it large selection of games, which could be found in video arcades worldwide, later followed by a video game console that allowed its fans to enjoy the gaming experience at home. The 1980s saw an increase in competition for Atari, especially with the creation of Activision - a company created by former employees of Atari. Atari had been banking on the success of its home version of the Pac-Man arcade game, only to find that the game was not as big a success as it had predicted. A series of video game flops was followed by what was probably Atari's biggest mistake of all. Nintendo offered Atari the opportunity to sell its product in North America under the Atari name. When these companies couldn't come to an agreement, Nintendo decided to sell its product independently. Nintendo enjoyed great success with the release of its home video game console, but Atari's days were numbered. Atari still produces video games, but this brand's golden age is generally thought to be relegated to nostalgia and retro-kitsch. (For more, see How To Survive A Bankruptcy Filing.)

2. Blockbuster
Though Blockbuster may still be in business under Chapter 11, this company has been struggling after being forced to close a large number of its outlets. What caused this change? To begin with, it could be argued that Blockbuster did little to foster a positive relationship with customers. After negotiating deals with the movie studios, Blockbuster was able to drive out much of the competition by offering lower prices with a percentage of each rental fee going directly into profits. This put many of the smaller video rental companies out of business. Blockbuster then increased prices, but held on to customers by monopolizing the new release rental market.

In recent years, the video rental market has revolutionized, and consumers are able to access new release movies through alternative means. Pay-Per-View and Netflix allow consumers to view films without ever having to leave home. Consumers don't need to worry about late fees or out-of-stock DVDs. Some smaller video rental chains have been able to weather the storm by catering to niche markets and offering obscure, vintage or foreign films. It will be interesting to see if Blockbuster is able to find a way to stay relevant in this highly competitive market. (Don't choose this last-resort option until you learn how it will affect your future. For more, see An Overview Of Corporate Bankruptcy.)

3. AOL
America Online started out in the 1980s, and as the company grew, it became quite popular with web surfing newbies because they provided users with a simple and straight-forward method for using the internet. AOL continued to grow, and merged with Time Warner in 2000 in an attempt to become a media superpower. However, as computer users became more tech-savvy, many of AOL's customers left for other internet service providers, no longer feeling the need for AOL's simplistic and streamlined product. Consumers had some concern for the limitations that AOL placed on users, and the fact that AOL charged for the use of screen names, email and software, which many other providers offered for free. Because AOL failed to evolve with its consumers' technical abilities and their desire for unrestricted internet content, the company lost significant market share. (If a company files for bankruptcy, stockholders have the most to lose. For more, see An Overview Of Corporate Bankruptcy.)

4. Converse
Even though Converse shoes may still be seen on many a foot worldwide, this company is now actually owned by Nike. Converse started out in the early 1900s, becoming well known for its outstanding basketball shoes. In later decades, Converse enjoyed a revival within American counter-culture, including punk rockers and skateboarders, garnering up to 7% of the market share. Unfortunately, a series of dramas led this company into financial difficulties in the 1990s, including some athletic endorsements that ended poorly. Advertising budgets and celebrity endorsements dwindled, and Converse found that it was no longer able to compete with some of the larger athletic shoe companies. Even though Converse still had many brand loyalists, its market share shrank to an estimated 1% by the end of 2000. This, combined with a lower average selling price for its product compared to many of its competitors meant that Converse was simply not earning a large enough profit to survive. Converse had sizable debts and filed for bankruptcy. In 2003, Nike purchased the brand and has found success in reviving its retro appeal. (For more, see Changing the Face Of Bankruptcy.)

5. Chi-Chi's
Chi-Chi's, a Mexican-themed restaurant, started out in 1976 and thrived, despite the fact that Mexican cuisine wasn't widely popular at the time. The company became a huge success and grew rapidly. The success of Chi-Chi's led to a large number of competitors through the 1980s and '90s, which ate into Chi-Chi's market share significantly and forced it to file for bankruptcy in late 2003. Shortly afterward, the company's final death blow came from a massive Hepatitis-A outbreak linked to a Chi-Chi's location in Pennsylvania. At the time, the outbreak was the largest in U.S. history, with more than 650 confirmed cases linked to green onions the restaurant had served, which resulted in four deaths. Although the sickness was not linked to the staff or cleanliness of the restaurants, a number of large settlements were paid out to many of the affected patrons, forcing the company said adios to its North American business. Chi-Chi's still operates in a handful of other countries. (Find out how to determine whether this option will help you or hurt your financial situation. For more, see Should You File For Bankruptcy?)

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The Bottom Line
Perhaps success in business has a lot do with luck, though there are some basic concepts that can be easily learned from these five failed companies. Never underestimate the value of building a solid relationship with your customers. Even though consumers can be fickle, companies can enjoy some amount of customer loyalty when the company is perceived as being honest and providing a solid product. Companies must be constantly reviewing customer needs so that their products and services will stay relevant. Companies must always be monitoring what their competitors are doing, and attempt to maintain an edge over their direct competition. When companies suffer from bad press, it's important that they use their public relations specialists to craft responses that won't drive fear into consumers. Companies must strategize in order to weather economic storms, as well as changing consumer trends. (A bankruptcy company can provide great opportunities for savvy investors. For more, see Taking Advantage of Corporate Decline.)

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