What Is Declining Industry?

A declining industry is an industry where growth is either negative or is not growing at the broader rate of economic growth. There are many reasons for a declining industry: consumer demand may be steadily evaporating, the depletion of a natural resource may be occurring or there may be the emergent substitutes because of technological innovation.

Chart of industry growth stages including declining industry phase.

Key Takeaways

  • An industry is said to be in decline when it does not keep pace with the rest of the country's economic growth.
  • Important factors that can cause an industry's decline are changing consumer preferences, technological innovation, or emergence of substitutes.
  • Examples of declining industries are railroad and video rental services.

Understanding Declining Industry

An industry is said to be in decline when it does not keep pace with the rest of the country's economic growth, or when its rate of growth contracts across multiple measurement periods. Usually, the country's economic growth rate is measured by its gross domestic product (GDP). When an industry is heavily utilized within the market, it's expected that it would grow as a function of overall economic growth.

However, sometimes an industry does not grow when the rest of the economy grows. This can be the result of many factors, from changing consumer preferences, technological innovation that makes the industry or its products obsolete, or the emergence of substitutes. When the growth rate of an industry stagnates or starts to shrink, for any of these reasons, it is said to be in decline.

In some cases, a declining industry can rebound and start growing again. An example of this is the vinyl records industry in America. Vinyls are one of the oldest types of audio formats and have sustained sales through various changes in the industry, from radio to the Internet. After recording some of their highest sales in history during the early 1990s, sales for the vinyl record industry began falling and industry watchers assumed that it was on its death bed. However, demand for used records began increasing during the Great Recession and has been on a steady upward climb since. Experts attribute vinyl's staying power to unique audio quality and nostalgic value.

Example of Declining Industry

An example of a declining industry is the railroad industry, which has experienced decreased demand—largely due to newer and faster means of transporting goods (primarily air transport and trucking)—and has failed to remain competitive in pricing, at least in relation to the benefits of faster and more efficient transport provided by airlines and trucking services.

Video rental services are another example of a declining industry. The rise of the Internet along with video streaming services, such as Netflix and Youtube, has drawn its customers away from stores and kiosks to online platforms. The most powerful example of its decline is Blockbuster, which was a major player in the industry. According to statistics, there were 2,705 video rental services still in service in 2018. That number is expected to decline by 50% in the next five years or so. The services remain in operation in regions with poor Internet connectivity. For example, there are areas in Alaska without Internet connectivity. Redbox and other video rental services successfully provide services there.