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Four Lessons for Christian College Presidents from Toys "R" Us

March 20, 2018

Businesses demand constant innovation, for there are sunrise industries and sunset industries. Entire industries are now facing constant disruption and the level of disruption is not incremental but total. Amazon has changed the way many people shop. Uber and Lyft changed how many hail a ride. Amazon and Walmart are changing the way people buy food.

 

It is not hard to identify sunset industries—coal mining, newspapers, grocery stores, and driver-based automobiles and trucks. One does not want to be the CEO of the Pony Express, which lasted less than a year (1860-1861) because it did not pay attention to the advent of the telegraph.

 

Many suggest that universities as they are presently structured are sunset industries. Alarmist articles cross the university president’s desk on a daily basis such as “U.S. Colleges Are Facing a Demographic and Existential Crisis” (The Huffington Post, July 5, 2017) or “This Is the Way the College ‘Bubble’ Ends” (The Atlantic, July 26, 2017).

 

To effectively manage the inevitable disruption within innovation resistant colleges and universities places a high strain on university presidents. Increasingly, their role is left to securing outside funding to bolster the traditional model and the status quo. This is financial triage and not leadership. The bleeding may be slowed, but the patient is still going into shock and shock leads to death.

 

So the bankruptcy and subsequent closing of all 735 U.S. Toys “R” Us stores, which is leaving 30,000 employees without jobs, is a stark reminder of the challenges facing Christian college presidents in the coming decade. There are four lessons that can be gleaned from the Toys “R” Us experience that are relevant to Christian colleges.

 First, demographics are destiny. Toy stores need babies and children. An executive reported, “The decrease of birthrates in countries where we operate could negatively affect our business. Most of our end-customers are newborns and children, and, as a result, our revenues are dependent on the birthrates in countries where we operate. In recent years, many countries’ birthrates have dropped or stagnated as their population ages, and education and income increase.” In fact the declining birthrate over the past 12 years coincides with the company’s declining annual revenue over the same period.

 

The situation facing Christian colleges is even more severe. There is a general demographic decline in high school students that has resulted in a six-year decline in university enrollment. More than two-thirds of private colleges and over 50% of public colleges failed to meet their enrollment or net tuition revenue targets in 2016. According to the National Student Clearinghouse the number of graduating high school students is 81,000 fewer in 2017. This decline is “unprecedented in the history of as long as data has been kept on higher education,” said Kevin Crockett, a leader in an enrollment-management consulting firm. These trends will impact smaller colleges, those with student body of 3,000 or less students, more than other colleges. This means most Christian colleges.

 

But besides the normal college enrollment statistics, Christian colleges must also be mindful of the massive shifts in religious affiliation among young people. The fastest growing shift in religious demographics is among those sociologist refer to as “religious nones” or “religiously unaffiliated.” Among potential college students this number is now about 40% and growing. A new study by the Pinetop Foundation, “The Great Opportunity: The American Church in 2050” suggests sobering findings.

 

"The next 30 years will represent the largest missions opportunity in the history of America. It is the largest and fastest numerical shift in religious affiliation in the history of this country. Even in the most optimistic scenarios, Christian affiliation in the U.S. shrinks dramatically, and in our base case, over 1 million youth at least nominally in the church today will choose to leave each year for the next three decades. 35 million youth raised in families that call themselves Christian will say that they are not by 2050."

 

What is not often acknowledged is that 78% of religious nones come from churched backgrounds. So the church is causing the largest defection from the church in recent memory. Unless Christian colleges can create some cognitive distance from the institutional church, they too will be met with the same reaction.

 

So demographically there are fewer high school seniors and those with backgrounds in the church are leading in its rejection. Unless Christian college admissions representatives are able to address these changes, enrollment to Christian colleges is likely to continue its decline. Demographics do not suggest optimism.

 

Second, technology shapes delivery. Online shopping is completely changing the face of retail, particularly when price is the main consumer consideration. Walmart is completely reframing its brand from big box store to an online retailer. Amazon continues to be the bane of all traditional retailers. When a product becomes a commodity or price become the key variable, then online will win. Carvana now allows consumers to buy cars online without the overhead of dealerships. Walmart provides an online service that allows groceries to be delivered within two hours for a fee of less than $10 and millennials are the most tech savvy and cost sensitive generation in history.

 

These trends will continue to dominate educational delivery. With this in mind, the greatest declines in college enrollment have been seen in for-profit colleges. The sweet spot is a complex mix of hybrid education where high-tech is balanced with high-touch. Technology is more than delivering a commodity at a cheaper price, but providing high quality personalization in a more efficient way. What is not going to be as effective is using technology to do education in a traditional manner. Rather the entire process of information transfer needs to be rethought so that it starts with experience, engages the imagination, and lastly demands rational analysis. For many educators this hand, heart, head approach is the reverse of the head only approach that dominates classroom education today. What is needed is more than a virtual platform. The entire pedagogy needs to be reframed to align with these millennial priorities.

 

Third, potential college students view education as a broken promise: a college degree is no longer perceived as a good deal. The linkage between education and employment has been broken. Instead, educational debt represents a potential financial sea anchor for prospective students. Millennials make up the largest percentage of the U.S. population today; yet have seen the lowest labor force participation growth and highest unemployment out of all age groups. They live with the reality of slow wage growth, high home prices, and mounting student debt. This daily reality is coupled with the residual financial PTSD of the 2008 financial crisis, which happened during some of their most formative years. Their caution is reasonable.

 

Christian colleges have a slight advantage here over public universities as their enrollments costs are often lower, but so is their ability to provide tuition assistance. One does not want to get in a race to the bottom defined by lower costs. What is needed is a concerted effort to address the de-linkage between education and employment. Few colleges have a career counseling office that is as robust as their admissions office. Few make a commitment to securing their graduates’ employment. Colleges need to assume responsibility for employment statistics as much as graduation rates. The 2016 Gallup-Purdue study found a gap between student expectations and college performance in career placement, with only one in six college graduates saying their campus career office was helpful. Historically, students have been largely left to their own devices. This will need to change if this value skepticism is to be overcome. Toys “R” Us put all their eggs on a successful Christmas season in 2017. This did not happen as the value perception had already been broken in their consumer’s minds.

 

Fourth, one cannot disregard one’s customers without paying a stiff price. When Toys “R” Us restructured out of bankruptcy it assumed too much debt. As a result of being taken private in 2005, it was saddled with over $5 billion in debt with yearly payments of over $400 million. This was not simply a financial burden it changed the focus of management away from the customer to its creditors. Making money became its focus—read “greed”—rather than maximizing the customer experience. Once the customer sensed this, the game was over.

 

Likewise Christian colleges cannot succeed without paying attention to the substantive frame shift represented by their millennial customers. In my book, The New Copernicans, I outline seven dominant values of millennials. Each needs to be incorporated into the branding, marketing, and admissions strategy of Christian colleges. To ignore these shifts is to ignore one’s customer and risk further alienation. The tendency of some Christian colleges facing these pressures is to double down on the past, appealing to churches and board members, which is a long-term strategy for eventual failure. One must not ignore or disregard one’s customers. Admissions counselors need to be well versed in these shifts and be able to speak to the college’s brand in the light of these new emerging values.

 

Under the best of situations, Christian college presidencies are difficult jobs to fulfill successfully. Under the present conditions, over the course of the next decade it is anticipated that many will colleges will fail. Nostalgic memories of one’s childhood adventures within Toy “R” Us did not save it from the brutal realities of management failure. Christian colleges must prepare for acute disruption if they are to survive. This will require more than additional outside funding. It will require reframing how education is provided and every college must enhance its value proposition that differentiates it from the other 4,000 colleges and universities in America. Derek Thompson writing in The Atlantic said, “It’s a truism in economics that most technological change in any industry takes place not during the boom times, but during the downturns, when firms have to be clever to survive.” Such is the challenge facing Christian college presidents today.

 

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