U.S. Retail Industry Numbers: 829 Store Closings, 1486 Store Openings, Chapter 11 Updates, and 3 Restaurant Chains in 3 Different Business Cycle Stages

While there is still a lot of uncertainty in retailing worldwide, one thing that the latest numbers tell us for certain is that the U.S. retail industry is definitely not stagnant. With 829 new store closings, 1486 new store openings, and Chapter 11 entries and exits, U.S. retailers are retracting, expanding, succumbing and defying all at the same time. What U.S. retailers are not doing at this stage of the recession cycle is sitting still.

Cafeterias Close

Included in the most recent 829 tally, Luby's added 25 of its cafeterias to the 2009 store closing list last week. These 25 restaurants had collectively lost $5.5 million in fiscal year 2009. Systemwide, Luby's lost $23.3 million in its latest quarter, which was seven times greater than its losses for the same time period last year. Considering those numbers, it seems pretty ambitious for Luby's to continue to operate at all.

It's sad to watch the Luby's chain slowly shrink in size and popularity. Not only is it a nostalgic part of Texas Americana, the chain was also built with a set of old-fashioned business practices that I want to believe could carry any restaurant through any difficulty.

Luby's survived beyond the Great Depression in the 30's by feeding homeless people with leftovers at the end of the day. Luby's survived beyond Hurricane Carla in 1961 by feeding emergency workers despite the damage to its own kitchen facilities. In both instances, Luby's customers repaid the restaurant chain for its human kindness with fiercely loyal patronage.

"Share the work, share the risk, share the profits." This was a guiding principle of the restaurant chain's founder, Harry Luby which was also embraced by his son, Bob. Because both men genuinely valued their management team, Luby's has been well-known throughout it's 98-year history for having some of the lowest employee turnover rates in the U.S. restaurant industry.

It would be great to see Luby's stick to its roots and prove to the world that profit and principles are not mutually exclusive. After observing banking meltdowns, excessive CEO compensation, outrageous executive bonuses, and widespread corporate chaos over the past few years, it is clear that the world could use some more principle-guided leadership. The past decade in Luby's history, however, has revealed that the company may be abandoning its own dedication to outstanding employee and customer relationships.

Current online customer reviews consistently complain that Luby's food quality is decreasing while its prices are increasing. Customer compliments in the past expressed the exact opposite opinion.

Employees don't seem to be as happy with Luby's any more either. In two high-profile cases in the past three years, Luby's paid substantial settlements to former employees in response to EEOC suits for disability bias and sexual harassment.

Investor satisfaction seems to be faltering for Luby's as well. Since well-known restauranteurs Chris and Harris Pappas took over leadership of the Luby's chain in 2001, they have been criticized for management conflicts of interest with their Pappas restaurants, and their leadership team has been in proxy fights with shareholders.

CEO Chris Pappas said in a teleconference last week that Luby's current profitability plunge is a result of "the challenging economic environment, including the unemployment rate rising to its highest level in over 20 years." But considering the pre-recession challenges that Luby's was having, perhaps the economy is not causing Luby's problems, but rather just revealing them.

Restaurants Reorganize

Another distressed restaurant chain seems to be having management problems as well. The famous Fatburger chain is still under bankruptcy court protection, six months after its filing. Included in the most recent retail Chapter 11 updates, Fatburger has recently announced the closing of eight company-owned restaurants that were collectively losing $1 million. The company also recently stated its intention to file its reorganization plans with the bankruptcy court before mid-November, which it hopes will include renegotiated leases and restructured debt.

In an overcrowded American burger market, Fatburger has one invaluable competitive advantage that other burger joints would fry for - unpaid celebrity endorsements. Sports, music, film, and television celebrities eat at Fatburger, rap about Fatburger, and own Fatburger franchises. Montel Williams, Kanye West, Queen Latifah, Ice Cube, and the Beastie Boys have all voluntarily associated themselves with the chain in one way or another. How could a restaurant chain not be able to capitalize on all that star power?

Since buying out the chain in 2003, CEO Andrew Wiederhorn has been on trial, in and out of jail, and fighting foreclosure on his personal residence. That may not be the cause of Fatburger's struggles, but it's at least got to be a little bit distracting.

It's difficult to keep track of how the company has been doing financially in the recession because apparently parent company Fog Cutter has been too busy planning its Fatburger expansion into China to file SEC paperwork for the past year or so. But that annoying little paperwork task is one thing that Widerhorn promises is high on his 2009 to-do list, right next to bankruptcy reorganization, of course.

Eateries Expand

While Fatburger has only Chapter 11 news to report, one of its biggest competitors was counted among the 1,486 store openings most recently tallied. In addition to approximately 60 openings that rival Smashburger added to the 2009 store opening list, the company has also confirmed that seven new airport locations will be among the 18 new locations it has contributed to the 2010 store openings tally.

Smashburger hasn't garnered high profile celebrity endorsements, but what it has successfully amassed is local appeal. If you attended the grand opening of the new Smashburger in Dayton, Ohio this weekend, you could have ordered the Buckeye Smashburger with fried pepper rings, and your smashing purchase would have contributed to the Thank You Foundation of Dayton. If you had stopped into the two-week old Tempe, Arizona Smashburger on Saturday, you could have ordered the Arizona Burger with habanero cheese, and your spicy appetite would have benefited the Sun Devil Family Charities.

Last month, avid Smashburger fans in Minneapolis saw the Spicy Baja Smashburger on Texas menus and decided that the southwest concoction would also be a smash hit in the great white north. So the Twin City smashies started campaigning via blog posts and Twitter tweets until the company agreed to add its jalapeno-chipotle-pepper-jack concoction to Minnesota menus.

Smashburger issued plenty of press releases about the whole affair, saying that it was glad to make the menu change for Twin City fans, which it did with plenty of fan-fare. Who needs celebrity endorsements when you've got food that creates its own burger buzz?

Luby's vs. Fatburger vs. Smashburger

Three different restaurant chains in the same economy find themselves in three different stages of their own business cycle. The critical difference? Luby's and Fatburger were already having internal conflict and management challenges before the recession hit. Smashburger, by comparison, seemed to be in hamburger heaven. External economic crisis caused further destabilization within the Luby's and Fatburger chains, while a self-built stabilization in Smashburger's operations has allowed it to buck the recession and move way ahead of the recovery curve.

So perhaps one of the big lessons of the Great Recession is that there is no such thing as a recession-proof business. Rather, there are businesses that are rendered crisis-proof by stable management teams with strong values and solid customer and employee relationships. Cash reserves help too. But even a big pile of money can't hide mismanagement forever.