The list of retailers that are either closing stores or shuttering completely is long and getting longer by the day—Limited Stores, JC Penney, Macy’s, Radio Shack, Sears, Staples. Even after accounting for these plans there remains a “store bubble.” The wave of store closings is just getting started and will likely last for many years.
Not surprisingly, changing consumer behavior and the shift to e-commerce are noted as the main drivers of store closings. Retailers are quick to point out that their stores are making e-commerce contributions – ship to store, ship from store, returns processing, etc. But it’s not enough. The store portfolio is still too large.
For many retailers, the question now is how do we right-size our store portfolio? It's a question that many retailers don't yet have a good answer for. Awareness of massive industry changes is understandably high, while transformation is surprisingly low. Many retailers seem almost paralyzed by the speed of change.
Tearing Down the Walls
Look for retailers to start redefining the value of the store, something they seem to be struggling with now. Retailers have traditionally used four-wall analysis (each store’s sales, COGS, rent, labor, etc.) to determine a store’s contribution to the overall business. If retailers are looking at the bigger picture when noting that stores help e-commerce, shouldn’t the same thinking apply to the four-wall analysis?
Looking beyond the store, the four-wall analysis could benefit from the addition of customer data. This will help determine which stores are making the biggest contributions to the overall business. Success factors will be different for each retailer but could include store traffic, returns processing and e-commerce sales to name just a few. A store index that takes this holistic view will help retailers better understand each store’s overall value.
A more holistic view will not stop the wave of store closings, but it will certainly help identify some stores that should remain open, expose others that will be closed, and down the road, help identify new store opportunities.
From a consumer’s perspective, stores remain a vital part of the equation. The question then becomes, which stores have the most value? Incorporating customer behavior data will provide answers.