Sunset Industry

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21 Aug, 2024

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A Sunset Industry is an established industry facing decline due to a lack of market demand, limited or non-existent technological advancement, or drastic changes in customer preferences, among other things. The profit levels and profitability of such industries or sectors decrease as and when they reach the maximum maturity possible and witness no organic growth.

The decline can be attributed to a lack of innovation, low sectoral growth, almost nil product ideas, or high market vulnerabilities. With limited room for change in any area (market, customers, technology, machinery & equipment, etc.), they find it difficult to stay relevant in the current market. This hampers their capacity to stay productive and cost-efficient in a rapidly evolving business environment.

What Is Sunset Industry?

Sunset industries can be defined as those sectors that usually see a decline when they cannot compete with new technology or trends and are unable to adapt to changing market and consumer requirements.
Such industries have companies with a long-standing reputation, but they lack organic growth due to saturation or resistance to change.
Low innovation, diminishing demand, outdated technology, and low profitability are some key features of this industry.
Rapidly changing consumer choices, increasing costs of advanced technologies, or changes in the global economy may cause this reduction.

Sunset Industry Explained

A sunset industry is a sector that has matured to the point where established players exist in the market, and a fixed form of value delivery and definite protocols are practiced, which results in a lack of organic growth. Many industries rely on a limited number of well-received products to maintain their reputation and generate steady income. When new inventions and concepts begin to replace the business, such industries deteriorate and gradually become a sunset industry.

These industries have declining demand and high fixed costs. Their primary concern revolves around reducing capital stock and remaining profitable, as it lowers fixed costs associated with maintaining these assets. They also wish to reduce land- and labor-related costs.

New industries typically grow with emerging trends or customer requirements, or new technology may push organic growth across companies in specific sectors. Emerging industries eventually grow into mature ones. However, with innovation or change, the number of companies or enterprises operating in a sector may decrease over time as new market requirements emerge. This is the stage at which a sector may start its journey to becoming a sunset industry.

Certain sectors decline or see a drop in profitability for highly specific reasons. For instance, the introduction of smartphones put several industries out of business. The common reasons for the decline are the lack of innovation, diminishing market share, and outdated technology. Other factors that can trigger a decline include shifting or changing consumer preferences, the introduction of more sophisticated technologies, or changes in the global economy. Businesses in certain sectors may find it difficult to adjust to these developments, which could result in decreased sales and layoffs.

Characteristics

The sunset industry definition covers the characteristics of these industries. They have been discussed below.

Declining demand: Sunset industries witness a continual decrease in demand for their products or services. Changing consumer preferences, technological advancements, or market saturation are usually the key reasons for such a decline.
Outdated technology: These industries rely on outdated technologies and production methods, which hinders their competitiveness and adaptability to evolving market conditions. Their reliance on obsolete practices becomes a disadvantage against more innovative competitors.
Decreasing profitability: Low revenue figures, narrowing profit margins, and declining profitability characterize sunset sectors. Such industries also face more competition and falling demand. Due to financial instability or losses, in some cases, they may face business uncertainties and financial challenges. Such problems may even force these industries to shut down.
Lack of innovation: Sunset industries often struggle to stay innovative and up to date with new developments in technology and trends. They gradually start becoming less relevant in the market due to their incapacity to change and adopt new concepts and solutions.
Talent losses: Businesses in sunset industries tend to reduce staff or close entirely as their business volume declines. Such layoffs have serious social and economic implications for the local population, particularly those depending on the industry financially. The loss of work may significantly impact people's standard of living and the local economy.

Examples

Let us consider a few examples to get further insight into the concept.

Example #1

Dan, an investor, wants to invest in a sunset industry and sees potential in newspaper publishing. He is aware that the industry is in decline. However, according to him, there is still a niche market for specialized publications, even though print newspapers are no longer in demand due to digital media.

Dan wants to focus on providing distinctive material to a specific audience, minimize expenses, and buy struggling newspapers. Despite the industry's general downturn, he thinks he can bring these publications back to life and make money with creative reorganization and innovative ideas.

Example #2

The filament and CFL light bulb industries became sunset industries due to the disruptive influence of LED light bulbs. These conventional lighting options fell prey to technological developments, and their demand was adversely affected as LED lighting gained prominence. LED lighting offers better technology, boosts power savings, and is more environmentally friendly. Hence, consumers' need for energy-efficient products, a general level of market saturation, and environmental concerns contributed to the sector’s decline.

LED light bulbs disrupted the market dynamics by outperforming filament and CFL light bulbs in terms of energy efficiency, durability, and cost-effectiveness. The latter experienced financial instability as the demand for conventional lighting solutions reduced dramatically.

An important factor in the downfall of the filament and CFL light bulb industries was the growing emphasis on sustainability and environmental awareness. LED light bulbs aligned with changing customer preferences and governmental laws pertaining to low energy consumption and controlled environmental impact. This shows long-term profitability requires recognizing and pursuing new ideas. It also shows how the lack of innovation can cause an industry to decline.

Sunset Industry vs Sunrise Industry

The differences between sunset and sunrise industries have been listed in the table below.

Key Points	Sunset Industry	Sunrise Industry
Concept	Sunset industries are those with declining demand and growth potential.	Sunrise industries are those that have increasing demand and growth potential. They are also called emerging industries.
Growth	They begin to shrink (in terms of markets, customers, innovation, etc.) and face falling demand.	They are defined by quick expansion and rising demand.
Innovation	These industries often lack innovation and depend on outdated methods.	Sunrise industries are generally linked to innovation and new technologies adoption.
Market potential	They have low market potential and struggle to remain in business.	These industries have huge market potential and present prospects for growth and profitability.
Job creation	Sunset industries often lead to job losses as they collapse.	Sunrise industries generate new jobs and stimulate the employment rate.
Investment attractiveness	These sectors are less appealing because they are in the decline mode.	Due to their growth potential, sunrise industries are typically considered appealing for long-term investment.

Frequently Asked Questions (FAQs)

1. Is oil and gas a sunset industry?

Whether the oil and gas sector is a sunset industry is debatable. Although the world is increasingly moving toward sustainable energy sources, the industry is still a major provider of fuel. However, the industry's long-term viability is threatened by climate change.

2. Why is gold referred to as a sunset industry?

The gold business is not usually thought of as a sunset industry. It is seen as a store of value and a haven for investment, particularly in difficult economic times. Investors still prefer gold despite potential fluctuations in demand.

3. Is consulting a sunset industry?

Consulting may not be seen as a sunset industry. Professionals in the consulting sector offer services across various fields, including management, technology, strategy, and human resources. Therefore, consulting firms have the potential for growth, and they may be able to adapt to changing client demands.

4. Can banking be called a sunset industry?

Banking is not considered a sunset industry. The economy still heavily depends on traditional banking services like lending, investment management, and financial planning services, even in the face of technological breakthroughs and the growth of Internet banking.