IF 30% OF RETAIL SALES ARE MADE ONLINE, DO ALL RETAILERS NEED TO SHUT AT LEAST 30% OF THEIR STORES?
Boots, Marks & Spencer, Dixons Carphone, Debenhams – the list of retailers looking to close stores is growing longer by the day.
One simple reason behind this is the shift to online shopping meaning fewer sales are made in physical shops.
The ease and convenience of being able to search an unlimited selection of products and have them delivered to your home – often in a matter of hours rather than days – has proven too enticing for many shoppers.
According to the BRC-KPMG Retail Sales Monitor, e-commerce sales made up 30% of retail sales in May and analyst Retail Economics predicts 53% of sales will be online within 10 years.
As online penetration increases, should the number of physical stores reduce at the same rate?
Jonathan De Mello, head of retail consultancy at Harper Dennis Hobbs, believes that retailers have around 20% to 30% too much space (the same amount that has gravitated online – coincidence?).
There are some compelling reasons to close at least 30% of stores:
- The economics no longer stack up, footfall and therefore sales have been declining yet costs have only increased
- Stores with marginal contribution levels have received zero investment so they become shabby, out of date and brand damaging
- You no longer need a large number of stores to achieve maximum market share, a slick website will achieve the same goal
- Many high streets have already become unattractive places to shop with too little choice
- The generation who have grown up with mobile phones and online shopping will not visit a legacy store that exists only to get historic market coverage
- A physical store can never compete with the availability levels of online. They just can’t hold the stock and cannot open 24/7.
In terms of true brand-enhancing flagships, these need major investment. Even retailers with t deepest of pockets could not afford to roll out hundreds of these stores.
When it comes to omnichannel behaviour, stores are a valuable touchpoint for customers.
At Next, more than half of online orders are collected in store and a whopping 80% of online returns are taken back to store. This level of convenience may well convince some shoppers to click the buy button, in fact Next boss Lord Wolfson has said he would be prepared to keep 120 loss-making shops open in the next 15 years to serve e-commerce orders. However, I doubt that many retailers could go to such expense.
The core reason retailers operate stores is to drive sales and profits – not to act as expensive distribution hubs.
The fact is most retailers have too many stores for the digital age and the omnichannel retail revolution is just getting started
Back in the 1980s, 200-300 stores would have given non-food retailers national coverage. By 2010, that had dramatically reduced to around 100 stores. Nowadays, most retailers need no more than 70 stores.
Unfortunately, some retailers are still living in the 1980s. Large store portfolios are no longer needed.
There should be a simple acid test; the economics of a physical store location have to afford investment in the environment, visual merchandising, availability and customer service.
Put another way, every store needs to be the ultimate manifestation of the brand. This will mean fewer, better, strategically located stores that really inspire and engage with the customer, making the visit a worthwhile experience.
The fact is most retailers have too many stores for the digital age and the omnichannel retail revolution is just getting started.
It’s time that retailers stepped into the modern day and adjusted their store estate accordingly, with a sense of urgency, as time has already overtaken many of them.