Another month, another bloodbath at a UK retailer. Debenhams is the latest in a long list of retailers to fall into administration. A physical store presence that doesn’t match consumer needs and a large debt pile have been cited as key reasons for its demise. Debenhams’ story is not unique. 67 stores to go at Arcadia, 52% decline in profits at Kingfisher, 45% at John Lewis. The horror show comes with a consistent villain; nimbler online competitors, better serving the changing habits of the British shopper.
Whatever the brand, the solution seems to be the same. A programme of store closures and redundancies. Deciding which stores to close is usually driven by traditional metrics of revenue per square foot, year-on-year comparison and property cost. Whilst this is easy to understand and the data readily available, it neglects some of the critical reasons behind why a physical estate still has value.
Another lens that can provide a more sophisticated view is granular customer need. If retailers understand the myriad daily desires and needs of their consumers, they can build the propositions to meet them. That means having great traditional research, sophisticated ethnography and powerful analytics. Fit-certainty, tangibility, hyper-immediacy, specific advice and reassurance, trial, shared social experience, leisure – these are all needs where the physical estate has at least some role to play for the modern retail consumer. Several successful online-first retailers are building an offline presence built around these needs. Notable examples of good practice in this space include Amazon Go’s cashier-less stores and Missguided flagship store, with huge screens that stream customer-generated social media content.
Figuring out how to serve these needs in a compelling and interesting way provides a blueprint for what physical stores should do for people. It also suggests a new model for estate categorisation that subverts a traditional ‘wealth of town vs sq footage view’. Eg - does your e-commerce data show a clustering of postcodes on the main route from a station? Configure the local store as a collection and returns hub. High footfall shopping centre site? Make it a leisure destination and invite partners to share the cost.
For too long customer segmentation and insight has been the preserve of the marketing team, used primarily to select media. Bringing a sophisticated understanding of customer needs to a property discussion changes the game. It might mean more, rather than fewer closures but at least retailers will be making the right decisions and will understand how to invest in the remaining estate to ensure it’s seen as a source of value rather than sunk cost.
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James has 20 years of experience applying creative thinking to business challenges and specialises in customer transformation.
James Easterbrook Client Director
Ernest is an experienced business transformation consultant with a passion for delivering change, improving ways of working and making a real difference to clients.