Creating a Sustainable Footprint
Date december 2015
Featured in the Journal of Corporate Renewal
Today’s retailers face unprecedented challenges in the marketplace as they confront the evolution of not only customer shopping patterns, but also how retail is defined. Historically, top tier retailers thrived because they had the best locations and offered desirable merchandise at a great value proposition. Add to that efficient merchandising controls and tight field operations, and it equaled success.
That model has shifted significantly due to the maturation of e-commerce and the effect it has had on brick-and-mortar efficiency in the omnichannel environment. A recent slew of store closures affecting specialty retail demonstrates the impact of this new reality for the retail industry.
Given this trend, retailers are reviewing lease portfolios with a careful eye on the future and their ever declining sales per square foot ratios. Successful management teams are proactively identifying locations that, while today may be marginally profitable or break even, will turn into negative contributors, given this irreversible trend. Historically, the decision to renew or extend leases was based primarily on store contribution and the key demographics of individual locations. Stores with marginal contribution were identified and decisions were made on whether to renegotiate under more favorable terms or close locations.
In the current environment, retailers are now factoring in the real e-commerce effect (in most cases, double-digit increases) and its impact on future store performance, and making real-time decisions on store profitability. As part of this growing trend, retailers are facing more store closings than ever and are accepting them as part of the changing retail landscape. Understanding that closing stores is not indicative of failure, but rather of an inevitable shift toward an omnichannel marketplace, is important to the success of any retailer. While it’s unlikely that brick-and-mortar stores will ever be displaced entirely by e-commerce, management teams must understand the balance between the two and develop a strategy going forward.
When reviewing lease portfolios in today’s environment, management teams must consider several key factors aside from store profitability: adjacencies to other store locations and e-commerce migration.
Given the sophistication of today’s customers and merchants’ ability to track their shopping patterns, either through loyalty programs or mobile devices, retailers can analyze individual markets to determine how much transference would likely occur should they close a location. With this information, retailers can project an appropriate number of stores in each market and identify potential closures. The ability to close a store and effectively transfer customers to an adjacent location and track buying behavior going forward is crucial to success.
While transferring customers from a closing store to an adjacent store is critical, a second and equally important step is transitioning shoppers to the e-commerce platform. In some cases, retailers may be exiting a market entirely for a variety of reasons, but the ability to retain a core percentage of the customer base online is a primary vehicle for growth in today’s marketplace. In virtually every instance, a retailer’s key initiatives are to increase its online presence and protect the brand.
Now more than ever, brand protection is a major concern for all retailers, regardless of their stage in the growth cycle. Historically there was a perception that healthy retailers did not close stores (and for some this is still the case), but that simply is not true anymore. In fact, strategies for both ongoing brand marketing and store closing marketing need not differ dramatically in their approaches. After all, if the goal is to provide a consistent experience to customers and communicate that the brand is still thriving, why speak differently to them during the store closing process?
The traditional methods of marketing a store closing event, such as signage and advertising, maintain relevance as much now as ever; however, the event can also be used as a leverage point to communicate a positive message about the vitality of the brand that resonates with consumers. Further, during store closing sales, retailers often attract first-time customers, which presents an opportunity to engage and acquire them, thus growing the customer database. Providing a positive shopping experience and valuable incentives for loyalty and/or email sign-ups are critical to capturing new customer data for ongoing marketing efforts.
In addition to new customer acquisition, existing customers must experience the brand as they always have and be presented with incentives and be made aware of how to continue shopping at the most convenient ongoing channel. Existing customer retention also involves a positive shopping experience to ensure that customers know the brand they value is simply relocating, moving to better serve its patrons, etc.
Finally, transitioning both new and existing customers from the closing store to the nearest ongoing store or online is a consideration that should not be overlooked. Marketing programs and incentives developed during the store closing event should always keep customer transition top of mind. Taking an opportunistic angle by developing customer transition programs that dovetail with a retailer’s existing marketing strategies can generate a larger customer base by the end of the store closing event.
Customer Acquisition, Transition, Retention
For operators and their advisors, successful realization of a strategic plan to right-size a business requires careful execution of the following.
Consideration of successful programs and strategies already in place. Many retailers have successfully developed valuable programs for their customers that encourage loyalty, offer rewards, and deliver a positive brand experience. These programs should be leveraged throughout the store closing event to capture additional membership to allow for future marketing efforts, which aide in customer retention. Similarly, if a customer base is historically most receptive to print or email advertising, those tactics should be included as part of the closing event marketing mix as well. The approach and the message tone and design do not, and should not, need to be re-created for closing events as it could cause market confusion and damage the brand.
Introducing new programs during the closing process. Store closing events present opportunities to implement new programs that add value for customers. With an eye on brand protection, such programs can encourage customer loyalty and offer incentives for customers to transition to a new store location and/or the retailer’s e-commerce platform. New programs should never compete with existing programs, so it is critical to conduct a full audit prior to their development to prevent confusion. Store closings should be viewed as an opportunity to create positive energy surrounding the brand and encourage continued loyalty across all channels.
Capitalizing on trends in digital retail marketing to connect with customers. Today’s major retailers know that a digital marketing stack is the new must-have. Understandably, many retailers have been slow to implement these strategies because they are unfamiliar with the technologies, which are literally evolving every day. Customers demand to be in control and decide how they interact with a brand, and digital marketing channels are leading the way in delivering that.
Retailers now strive to make the shopping and brand experience seamless by focusing on omnichannel strategies to blend a cohesive on- to offline experience. Mobile has a huge influence on purchase decisions, the majority of which are still acted upon in brick and mortar stores. Therefore, being everywhere a customer is should be the center of the strategy.
These strategies aren’t just relevant for ongoing marketing. In periods of transition or store closure, an omnichannel approach to customer transference has proven to generate results that are far greater than simply using traditional methods. Depending on a retailer’s technological capabilities, offline channels can be integrated with online channels that include location-based push notifications, apps, social media, and pass-enabled email. The premise is that mobile is becoming the center of all touch points. Retailers who tie together the in-store experience, brand integrity, and offline tactics with the these and other digital tactics are far more likely to acquire, transition, and retain a higher number of customers during a store closing event.
Ensuring that the in-store staff is on board. If a retailer is substantially reducing its footprint or exiting a market altogether, it is crucial that management teams consider the impact on their in-store employees. The challenge in this situation is that the existing staff is important in supporting the closing event. Many retailers provide incentives to key employees, such as store managers, assistant managers, or perhaps star sales people. By providing incentives, operators can encourage staff to stay on throughout the event and demonstrate how valuable they are to the brand in serving as positive ambassadors over the course of the process.
These key employees should be thoroughly trained and incented on marketing programs designed to transition customers. Whether there are handouts, sign-ups, or tablets for registration, these individuals are critical to the success of the marketing program. Ensuring that they are armed with the resources (human or technological) to carry out instructions will pay dividends.
Building Future Value
The imperative for change in the retail industry is obvious and is already beginning to distinguish the leaders from the underperformers. While the future may be fraught for operators that neglect to acknowledge the impact of the omnichannel environment, those same “threats” can become powerful tools when thoughtfully wielded. As the industry rounds this turning point, opportunities to enhance offerings to meet the needs of increasingly demanding customers on their terms and build sustainable value for the future has never been brighter.