The recent chapter 11 filings of previously large diamond and jewelry retailers
Fortunoff ,Derco, Fabrikant, Omega Jewelers, Friedmans Jewelers, etc. raises an interesting point.
There is a perception in many industries and markets that the bigger a retailer is, the more “established”, “reputable”, “secure”, etc. they must be.
People operate off the misguided assumption that a large retail establishment is not going to run away with the customers money and will actually be around for a long time to service their needs.
The reality however is a far different story.
The large size of a company is not at all an indication of its financial solvency and/or profitability.
Furthermore, it does not illustrate that they will be around in 10-20 years to service their clients.
In fact, sometimes you have “big” companies who get so taken with their size and status that they begin to spend money without discretion or responsibility. Bad business decisions are made and the company is at risk of over extending itself.
In many instances when you try to be everywhere at the same time, you ultimately sacrifice your ability to do “fewer things right” and wind up throwing away profits. This leads to financial insolvency and loss of profits even when gross sales may be increasing.
To increase gross sales and show a net loss at the end of the year is usually the first indication that a company is suffering terribly and going nowhere quickly.
There is no value (or sense) in increasing gross sales while showing a loss with respect to (net) profits at the same time.
Very often “big companies” have a hard time grasping and dealing with this concept. They are slow to change and find it too cumbersome to evolve and adapt with a changing marketplace.
This is why I believe many “big” companies are hurting and why too many of them are forced to declare chapter 11 as soon as the deck of cards comes tumbling down.
Conversely, smaller companies tend to be more fiscally responsible and have a greater ability to adapt to changes in the marketplace.
History is showing just how true this is in the diamond industry.