In recent years, real-estate portfolio optimization has become standard practice for retailers, and with it, so, too, have store closings. Oftentimes, the closings result from retailers’ desire to relocate stores to improve their position within a market as leases come up for renewal. Or they may result from the necessity to move to a smaller or larger footprint. In other instances, a location may be underperforming the rest of the chain.
Whatever the reason, the complexities and challenges of the process make it cumbersome for everyone, from a store manager to the corporate office. Even retailers with successful operations and excellent procedures for opening stores say that closings are difficult experiences that can drain valuable resources and distract from the core business. How to change the dynamics of the situation?
“The key to transitioning that potentially negative experience into a positive outcome is utilizing proper processes and understanding value,” said Richard P. Edwards, principal and managing director, Gordon Brothers Group, which leads inventory dispositions and manages financial due diligence for major retail store-closing events.
According to Edwards, although each closing has unique characteristics, the processes that enable a retailer to achieve maximum recovery remain constant and consistently yield positive results and a 100% sell-through rate. Based on his firm’s effective experiences across all retail sectors and formats, he offers the following suggestions for a positive outcome:
Plan strategically: Evaluate store-specific data and establish realistic expectations for recovery. Ideally, you should analyze previous store-closing sales with comparable inventories and institute an efficient wind-down program that controls payroll, advertising and operations expenses to maximize the net recovery.
“When the store-closing event is outsourced, define a sum-certain recovery that gives the event manager a stake in the outcome,” Edwards added.
Control presentation and prices: Avoid costly mistakes that leave shelves bare and adversely impact sell-through rates. Traditionally, retailers stop inventory replenishment to a location that is closing, leaving the store with a very poor presentation. The better tactic is to augment inventories with strong-selling product.
For example, when a grocery store closes it will achieve more profitable returns by continuing to stock high-turning staples, which keeps traffic returning to the store and promotes sell-through of slow-turning product.
“Another mistake is unilaterally slashing prices across all product categories,” Edwards said. “Instead, current fashion or more-desirable products should be discounted less than slow-turning merchandise that must be priced at deeper discounts.”
Seize opportunities: When a closing is due to relocation or additional stores remain open in the market, the event offers an opportunity to transition customers either to the new store or to other stores in the market. In-store signage and store-level promotions are effective tools for incenting shoppers to visit other locations.
Additionally, store closings present opportunities to increase sell-through of aged or clearance inventory from ongoing stores or distribution centers. Historically, sell-through and recovery rates are higher at a store-closing event than if the merchandise was left on clearance at an ongoing store.
Play by the rules: However, local jurisdictions often prohibit augmentation of inventories after a closing event has begun. Ironically, even retailers that have closed numerous stores are often shocked to learn permits are required and regulations differ in every town.
End strong: In addition to selling inventory to the final piece, you should recover maximum value for the store’s furniture, fixtures and equipment and leave stores in broom-clean condition, compliant with lease agreements.
Consider outsourcing: Profitable recoveries come from strategic plans and processes that are considerably more complex than merely hanging a store-closing sign.
“Outsourcing to an experienced event merchant enables the retailer to achieve a higher recovery while expending fewer resources,” Edwards said. “In virtually every instance that we’ve experienced, the recovery value more than covered the cost of outsourcing.”
For more on this topic, attend the SPECS session, “How to Create a Profitable Process of Closing or Reducing a Store,” on Tuesday, March 15, 2011, presented by Richard Edwards (email@example.com).