The challenge for retailers is how they can best leverage their physical stores to support a hybrid retailing model that seamlessly integrates online and physical channels. The effective management of retail stores through the store lifecycle from site location, re-fit and closure, is a fundamental enabler to ensuring expensive retail stores are generating maximum value for the retailer. Too often retailers make decision on the store lifecycle in isolation from the wider business strategy, and fail to invest in operational processes that underpin store lifecycle management. Ultimately, failure to effectively manage the retail store lifecycle will result in failure to execute a retailing business model that can meet consumers’ expectations for a seamless online and in-store retail experience.
Over the last decade business commentators have written about the demise of bricks and mortar retailing. More recently it has been recognised that retail stores are here to stay. The Office of National Statistics (ONS) show that, although there has been rapid growth in online retailing, it is not yet the dominant force.
Physical stores are now an integral part of the online fulfilment supply chain, with retailers offering consumers new distribution points to collect online purchases. Major retailers have made significant investments in trialling and expanding their ‘click and collect’ in-store propositions, shifting away from expensive home delivery models. Sainsbury’s acquisition of Argos has seen the retailer heavily invest, with ‘click and collect’ now offered in over 200 stores. Since the Argos acquisition, Sainsbury’s has seen steady sales growth in this regard.
Furthermore, online retailers recognise the lack of physical collection points as a potential strategic weakness, with many still predominantly relying on expensive direct delivery to consumers. Pure play online retailers are also now recognising the advantages of physical stores integrated with online channel. Since 2015, retailer Amazon has opened seven bookstores that combine the traditional bookshop format, with a new digital experience showcasing Amazon devices. In a recent Morgan Stanley report a survey found that in the grocery sector 84% of consumers want to see food before they buy it. Amazon’s recent acquisition of Wholefoods for $13.7 billion, with over 450 stores, will provide a new retail channel to accelerate the growth their grocery operation and will likely be used to sell other non-grocery Amazon products.
Physical retail presence is not only being used as a distribution point to support an online channel, but is also increasingly seen as a forum to interact and obtain new consumers. Physical stores give a greater ability to offer consumers new experiences than online retailing. Online retailers, like the apparel retailer Bonobos, are trialling the use of stores for consumers to try on clothes prior to making online purchases. Jet.com was spending $5 million per week on advertising, or $100 for each new customer acquisition online before they were acquired by Walmart. They are now trialling a new physical store in New York as a way to reduce customer acquisition costs.
At its core, retailing is still about understanding customers, what they want and need, where they are and how to serve them. It is about knowing what stock you have, where it is and where it needs to be. All too often, retailers fail to develop a robust store portfolio strategy that is aligned with their wider business and online strategy and does not consider their consumers’ needs and shopping habits.
The management of stores through Store Lifecycle Management (SLM) from site selection, negotiation of leases, re-fit strategy and site closure is often undertaken by different parts of an organisation operating in siloes, making decisions based on limited information and supported by poor process and systems. We have seen that Real Estate teams often operate in isolation from Store Operations teams resulting in slow decision-making across the business.
Enhancing the foundations
To succeed in this market environment, retailers need to take a holistic and consistent approach to managing the lifecycle of their stores and to increasing collaboration across the organisation. This implies a systematic approach towards store strategy development, site selection, portfolio management, store activation and store closure (see figure 1). Defining a clear store portfolio strategy ensures the retailer is operating the right formats in the right locations. Streamlined operational processes will allow retailers to rapidly re-fit stores or trial new concepts and help to negotiate the best terms for lease renewals. Portfolio strategy should be informed by a robust fact base and internal business strategy with particular focus on omnichannel strategy, consumer trends and competitor analysis. It is not just about having stores in right location; it requires an assessment across multiple criteria including mix of store formats, footprint and an assessment of how the remaining store portfolio supports online retailing.
The understandable excitement and complexity of delivering the ‘right’ omnichannel business model could result in retailers losing sight of the fundamentals of retailing.Executives will need to incorporate this challenge into their fundamental store lifecycle management strategy ensuring that the right stakeholders, data and insight are aligned to make the most effective decisions for in store evolution and activation. The execution of SLM needs to include the right stakeholders from across the business, investment in developing consistent processes and systems to enhance decision making. Robust SLM processes will help to ensure retail operations can rapidly respond to changing consumer needs and allow the business to adopt an agile approach to store operations, trialling new store layouts to assess how consumers respond.
The essence of retailing hasn’t changed over many years and therefore it is crucial for retailers to remaster the basics such as SLM whilst integrating this into an evolving marketplace enhanced by online. The customer journey fundamentally still revolves around finding, educating and buying but it is now enhanced by new technologies. Retailers who can execute and deliver the most effective customer journey via a hybrid online and physical store model will be the ones who succeed.