Ian Thurman, Vice President, Location Planning
TIME FOR HARD HATS?
As even the mighty M&S struggle to achieve sales growth in their UK stores, executives in British retailers are heading for the most difficult decisions of their corporate lives. Those retailers still achieving success are being underpinned by growth in their online business. Increased sales per sq ft in pure ‘bricks’ operations are becoming a retail rarity.
Across the patch, large store portfolios seem like they belong to history. And chances are that bricks’ performance will get worse under the double whammy of falling consumer confidence and a move towards more online activity. 
For many UK retailers it’s now time for serious pruning of the store portfolio. But where do they start? And what are the implications of injudicious cuts? The most difficult decisions often carry the greatest risks and rationalising the store portfolio will be fraught with difficulty. The right choices will minimise the retailer’s overall turnover losses and the wrong decisions will have a much greater impact than expected.
CLICK & CLOSURE OR CLICK AND CHAOS?
Some will think the decision is easy. Open up the spreadsheet, click on data sort and close down the stores with poor sales against allocated costs. And expect that customers will transfer to their nearest store. However with multi-channel retailing and the complexities of UK consumer geography this is no time for back of the envelope calculations. Successful rationalisation will only happen by undertaking a detailed review of the UK portfolio and a thorough assessment of the place of bricks in the multi-channel equation.
FOCUSING ON THE CUSTOMER, NOT THE STORE
Store rationalisation runs the risk of focussing on the store rather than the customer. It’s important to remember that the store is merely a transaction point for customers. It can’t be assumed that the store (and by association the retailer) owns its existing customers. Particularly when retailers often know more about their online customers acquired in recent times compared to store customers who have been nameless shoppers over a number of years.
Store closures will not force changes in customers shopping patterns and so it’s vital to model the resultant loss in trade and identify stores and channels to capture displaced shoppers.
FLYING THE HIGH STREET FLAG
The internal relationship between stores and online is now much more than the operational issues over click and collect facilities. Any closure process needs to take into account the effect of closure on online trade from local shoppers.
Our consultancy work has shown a ‘brand anchor’ online benefit for many retailers in terms of existing stores and new openings. We’ve seen uplifts of up to 15% in online business in a new store’s catchment area (see Paul Langston’s earlier blog).
On the flip side, whilst store closures might not have a substantial and immediate effect on online business, scenarios need to include online decline as brand anchors are removed from the gaze of local consumers. The warning is clear – close a store and you may lose online business in the area, never mind struggling to hold on to existing bricks-based customers.
TRANSFERRING THE BUSINESS
Time was when the height of CRM in relation to store closures was the hand-written notice in the window instructing customers to go to the nearest store. With closures across the UK it will be vital to minimise the effect of closure on shopper’s spending. Reliance on staff on threat of redundancy to market the replacement stores and online channels will be asking turkeys to vote for Christmas.
It’s never too late to start collecting customer data from store customers and without that data retailers run the risk of losing their customers’ spending following closure of their local store.
Whilst closing stores may be soundly based in financial reality it’s also worth remembering the need to counter local PR issues. The fickle British consumer had abandoned branch based banking in droves but never failed to support the fight against their local closures. Marketing offers to displaced shoppers needs to be in place as soon as closures are announced. And at a national level don’t forget that loyalty can be focussed on the individual store as much as the retailer brand.
MAKING IT HAPPEN
The rationalisation process needs to be both strategically sound, tested and carefully actioned. In addition to the operational and logistical issues, our process follows the following 10 steps for a successful rationalisation process.
10 steps for rationalisation
1. Review customer shopping patterns around stores (and collect customer data if required)
2. Identify stores with highest customer overlap
3. Predict level of brick-based trading after initial rationalisation scenario
4. Identify stores still likely to fail to achieve satisfactory performance
5. Agree closure & re-size list (subject to lease issues)
6. Assess impact on online sales in closure areas
7. Identify customers (on & off-line) affected by the closures
8. Create multi-channel customer retention strategies for displaced shoppers
9. Close & re-size stores & act on retention
10. Review store performance, online sales and customer shopping patterns against predictions
Rationalisation for UK store portfolios is on the way. The only question is how you do it. Will you be the next retail disaster movie or a reputation enhanced by a carefully executed plan to focus stores on their local demographic?
Tags: customer data, multi-channel retailing, rationalisation, store
