Despite the headline, this isn’t really about the NFL, Tom Brady or the S*per B*wl, it’s about a key factor in free market economies: creative destruction.
“Blockbuster store closing sale” by Consumerist Dot Com is licensed under CC BY 2.0
Consider some of the names that bought Super Bowl airtime during Brady’s first rodeo in January 2002: AOL, Blockbuster, Radio Shack, Circuit City, CompUSA, Sears, Yahoo, VoiceStream Wireless, and Gateway Computers.
The Titans of Yesterday
Notice a theme? That list features some companies we saw in Captain Marvel, the 2019 hit movie that nailed 90s nostalgia and reminded us how fast the world had changed. Like when Blockbuster Video stores were still a thing.
For those who may not recall, when Brady was winning his first Super Bowl, Blockbuster was approaching its peak. In 2004, it operated 9,094 stores and employed some 84,300 people. The company was pulling in $6 billion in revenue annually and looked invincible. Today, a single Blockbuster store remains open — in the world.
Remember RadioShack? Once upon a time, it seemed as if you could find one of their brick-and-mortar stores in every corner of the USA. Not anymore. In 2015, RadioShack filed for Chapter 11 bankruptcy, in large part because of those many store locations, which cannibalized revenues.
Sears, one of the historic giants of retail, managed to make it to 2018 before announcing its bankruptcy. Its stores continue to close so fast, it’s hard to tell how many remain in operation. (The best guess is about 60.)
It’s sometimes difficult to remember that the titans of industry aren’t always the same companies from year to year, and the sector-dominating company today might well be begging for a bailout (or demanding protection from uppity new competitors) only a few years down the way.
Some might see the collapse of Blockbuster, Sears and company as a sign of something terribly wrong with our economic system. After all, Blockbuster alone paid rent at tens of thousands of properties and employed tens of thousands of workers. Sears was the largest American retailer (by far) for decades.
Watching the companies we once shopped at flounder and fail can be surprising, jarring even. But a closer look shows this cycle is not unusual and is actually the sign of a healthy market economy, not a dysfunctional one. What may seem like pure destruction actually clears the way for economic innovation and renewal. “Creative destruction” is how the economist Joseph Schumpeter (1880-1950) characterized business failure in a free market.
As economist Mark Perry points out, companies on top have a very hard time staying on top. Perry, a scholar at the American Enterprise institute and a professor of economics at the University of Michigan’s Flint campus, compared the 1955 Fortune 500 companies to the 2019 Fortune 500. He found that just 52 were still on the list six decades later.
I spent most of my working career in the software business, and many of the companies I’ve worked for over the years aren’t in business any more (my first job out of school was with Northern Telecom … remember them?). Software is a particularly fast-cycling industry, but it’s true of the economy as a whole at a slightly more sedate pace.
