Top 5 Declining Business Industries
Previously, NuWire analyzed the Top 5 Business Trends that may positively impact some businesses’ potential for profit. Other businesses, however, will struggle to adapt to the trends that are driving a larger economic transition; typically, these are businesses that are adversely affected by factors such as the predominance of the Internet, the weakening of the U.S. dollar or the poor state of the housing market.
NuWire identified and explored five business industries that appear to be on the decline. Entrepreneurs should consider the downward trends inherent in these industries and perhaps choose to invest their time and money in more promising endeavors.
Paper is quickly going out of fashion. It’s expensive and it kills trees—two big taboos for the modern consumer. Furthermore, the Internet, a faster and more convenient platform, is quickly becoming the preferred method for gathering information that would traditionally be captured in print media. Only one in fifty Americans got the news regularly from the internet in 1996; a decade later, nearly one in three Americans regularly received news online, according to the Pew Research Center.
It appears that major news corporations, such as The New York Times Company, are beginning to feel the squeeze. The New York Times reported last month that its parent company posted a $335,000 loss in the first quarter, “one of the worst periods the company and the newspaper industry have seen.” To make matters worse, the company’s main source of revenue—newspaper advertising in print and online—dropped 10.6 percent as the industry “suffers the twin blows of an economic downturn and the continuing long-term shift of readers and advertisers to the Internet.”
Entrepreneurs who wish to start a news service or magazine might want to start online and move to hard copy later, rather than vice versa. A website will incur much lower costs than the dissemination of material in print and has the potential to reach a much wider breadth in readership.
Once again, the Internet is transforming the way media is consumed, and this includes its significant impact on the entertainment industry.
If the disappearing act of music superstore Tower Records last year serves as any indication, the traditional music retail industry is hurting—badly. The legal and illegal downloading of MP3 files has almost certainly contributed to the plummet in traditional album sales, which have fallen by more than one third since 2000, according to an article in The New York Times last April.
The DVD retail and rental industries may experience a similar cooling, as the option to stream movies over the Internet becomes increasingly available. Apple Inc., for instance, has made headlines with the launch of its movie rental streaming feature via iTunes software. NetFlix, which has already claimed a significant chunk of business from traditional brick-and-mortar video rental stores with its mail order service, has recently begun to offer similar movie streaming capabilities for a limited selection of films.
Consumers are trying to cope with rising gas prices and oil-dependent businesses are struggling to manage their costs as well. Petroleum prices increased 4.4 percent in April after a 9.2 percent rise in March. Overall, prices for petroleum rose 57.2 percent from April 2007 to April 2008.
Automakers, for one, are struggling to recover from plummeting car sales. Sales decreased 29 percent from April 2007 at Chrysler, 23 percent at General Motors and 19 percent at the Ford Motor Company, according to an article in The New York Times earlier this month. Chrysler has even come up with a promotion in an attempt to staunch the bleeding: For those who buy or lease a car, Chrysler will cap regular unleaded gas at $2.99 for the first 12,000 miles they drive for the next three years at select dealerships.
The rise in gas prices has also had far-reaching consequences on real estate markets, particularly those in commuter areas; an increasing number of homeowners are choosing to live closer to work in places such as downtown Atlanta and Phoenix, where the commute from outlying areas is becoming prohibitive.
The rising cost of petroleum has been major contributing factor behind overall increasing price of imports. The U.S. Import Price Index rose 1.8 percent in April, following a 2.9 percent increase in March, according to a report by the Bureau of Labor Statistics. The weakening U.S. dollar has probably contributed to the escalating costs of foreign goods.
As a result of a few bad apples, the mortgage broker industry has been plagued with doubt. Entrepreneurs may wish to sit out the controversy until the problems resulting from the subprime lending crisis are resolved.
“The industry is under scrutiny in Washington and state capitols (sic) because rogue brokers have been accused of contributing to the spike in mortgage defaults and foreclosures, by encouraging borrowers to take risky loans and by charging excessive fees,” according to an article in The Wall Street Journal last year.
Mortgage brokers are also among the most common suspect occupations associated with mortgage fraud, along with other finance-related occupations, such as accountants and lenders, according to a 2007 report by the Federal Bureau of Investigation. Because allegations of mortgage fraud are on the rise—Suspicious Activity Reports (SARs) from financial institutions increased by 31 percent during 2007—consumers may be more be inclined to shop for home loans directly as a precautionary measure.
Borrowers may find that working directly with lending institutions is more practical and cost-effective. Tighter lending conditions have considerably reduced the range of options that were once available, and nearly all loan programs now conform to Fannie Mae or Freddie Mac guidelines. Consequently, borrowers may not require a mortgage broker’s services in reviewing their options. Furthermore, cutting out a broker’s “middleman” role may result in better deals between lenders and borrowers, who mutually save on the commissions they would otherwise be paying.
Traditional real estate brokerages
The success of real estate brokerages is largely dependent on the performance of local markets, but nationwide numbers suggest that housing sales has become a tough business for many. The price of single-family homes, for instance, dropped by 14.1 percent in the first quarter of 2008, according to the most recent findings of the S&P Case-Shiller home price Index.
The price drop may reflect the dual flattening of sales and massive amount of inventory that has overwhelmed the market throughout the past year. Total housing inventory rose 10.5 percent between March and April, while existing-home sales dropped by 1 percent in that same period, according to a report by the National Association of Realtors. New home sales rose for the first time in six months, marking an increase of 3.3 percent in April, according to the Commerce Department.
Brokerages may find that they are working for shrinking profits as the dynamics of the industry undergo changes. Between 1998 and 2005, national average commission rates fell from 5.5 percent to 5 percent, according to a report by the Federal Trade Commission and the U.S. Department of Justice. The report also anticipated that brokerage fees will generally decline as a result of efficiencies generated by the Internet, as well as increasing competition among brokers within the industry. Discount brokerages such as Redfin, for instance, are taking advantage of available technology and market opportunities and have been quickly increasing their market share.