Is your company experiencing good times? Time for a plan b

Disrupters should know better than anyone that they’re vulnerable to being disrupted themselves, and often faster than they think. Every company needs a backup. But the challenge is timing: Often organizations need to start moving to Plan B while Plan A is still in full swing.

Take Costco, the successful warehouse store, or even Sam’s Club, Wal-Mart’s similarly modeled business. Both of these “big-box” chains have been around for decades, disrupting small-scale retail and forcing competitors to adapt. The basic premise of these stores is that shoppers purchase an annual membership and then get discounts on a wide array of bulk groceries and household goods. Crowded parking lots and bumper-to-bumper shopping cart traffic speak to their popularity.

But there are some big red flags.

First, these stores are destinations. They’re mostly located in suburban areas, and cater to the shopping interests of the families that live nearby. But they aren’t as easily accessible as the neighborhood market. This didn’t matter during the heyday: Shoppers were willing to drive a few extra miles, particularly since Costco and Sam’s Club both sell gas at attractive prices, to stock up and take advantage of the discounts.

But now demographics are shifting in ways that don’t favor these stores. The original loyal customers are getting older and the younger generation is migrating toward urban centers, where homes are smaller and bulk purchasing less appealing. And people of all demographics are beginning to appreciate the advantages of living “smaller.”

These evolving preferences are subtle but powerful. They’re one of the major drivers of innovation and disruption: New priorities arise, creating unmet needs, and areas not yet overrun with competitors. Such changes pose a challenge to established businesses that aren’t evolving to keep up. Recently I wrote about the longevity of McDonald’s and focused on the Big Mac, which soon turns 50. Shortly afterward, I learned

that only 1 in 5 millennials has tried a Big Mac. American institutions even older than McDonald’s have been displaced. No one is invincible.

Costco’s demographics problem is surmountable. There’s still time to adapt, and the company may even experience a resurgence. In the U.S., the average new home size is 1,000 square feet larger than it was in 1973, just a few years before the box store model started to become popular. Clearly, families still have space for all those bulk goods.

But that brings us to the second problem facing warehouse clubs: They’re a destination. Would you rather go out to shop in a massive unadorned warehouse, or order from Amazon Prime? Amazon.com Inc. has brought the shopping opportunity once only available at places like Costco to your home. Amazon has also figured out a way around Costco’s big advantage of bulk buying: the subscription plan, which allows you to get normal-size staples delivered regularly. Storage and convenience problems solved.

And yet even Amazon Prime is being challenged by newcomers. Boxed.com is poised to be a low-end disrupter, offering the same type of online bulk shopping. Though the company has a much more limited selection, it’s expanding, and there’s no membership fee. Shipping is free on purchases over a modest minimum dollar amount. Other online newcomers offer variations on this theme. In a climate in which even Amazon Prime should be worried, how are the brick-and-mortar warehouse stores adapting to the changing marketplace?

They’re not. Which brings us to the third major problem: Membership numbers are declining. The biggest concern seems to be that these companies have no Plan B. Based on the data, the warning signs to investors about the future health of Costco and its business model are increasing. It’s no secret that disenchanted investors accelerate business decline.