The Future of Bricks-and-Mortar in a Turbulent Retail Environment
Retail has reached a tipping point. Omnichannel shopping is no longer the “new thing” — it is THE THING. Demographics and technology have permanently altered consumer behavior, and retailers have felt the impact in an unprecedented manner.
In today’s environment, proactive management of the store portfolio is not an option—companies must actively pursue a forward-looking, dynamic, and data-centric approach to design the optimal store portfolio to ensure ongoing viability.
New Retail Reality
So far in 2017, RadioShack, Gander Mountain, Wet Seal, Hhgregg, MC Sports, Gymboree, Payless ShoeSource, and others have filed for bankruptcy, and more big names are expected to join. This does not necessarily mean the death of retail. Dig beneath the numbers, and a different narrative emerges.
Through the first five months of 2017, U.S. retail sales actually increased 4.0% over 20161. Consumer confidence remains high, and unemployment is at 4.4%2. Today’s shopper, while still on the lookout for value, has not gone into hibernation. Consumers are still shopping — they just do it in different ways.
While online shopping is trending upward — and certainly some retail segments, such as apparel and consumer electronics, feel the impact more than others — online sales still do not represent a majority of retail spending overall. The demand and need for physical stores still exists, and their role in an omnichannel world is critical.
Retailers must evolve and utilize current technology to become more efficient, particularly with regard to physical stores. Consumer demographics and preferences have evolved, forcing retail companies to face critical issues:
1. Sharp declines in physical store sales and customer traffic, with widening gaps between bricks-and-mortar and e-commerce sales and financial performance;
2. Lack of visibility into store-level performance, channel performance, sub-market demographics, efficacy of show-room designs, and the competitive impact of store locations;
3. An increased dependency on brick-and-mortar stores to support e-commerce customers, creating challenges balancing labor and inventory;
4. Minimal, ad hoc, or no process in place to review the portfolio and identify bottom and top performers to develop tailored strategies for each location; and
5. Lack of resources and expertise to operationalize strategic action plans.
Retailers recognize the importance of balancing bricks-and-mortar and e-commerce, but many have missed the mark in analyzing and implementing this balance, resulting in an unprecedented number of store closures and bankruptcies. Across all segments of retail, companies are dealing with issues that must be addressed before options run out and the only path left is reorganization.
Store Portfolio Optimization
Store portfolio optimization is a data-driven, analytical process that examines the current store portfolio of a company, then develops and implements a plan to optimize store performance. Proactive, predictive store portfolio planning allows companies to deal with the impacts of a rapidly changing retail environment, putting them ahead of competitors.
To get there, retailers must (1) understand the complex dynamics of their current store portfolio, (2) develop a detailed plan to achieve the optimal structure, and (3) implement a plan to optimize the portfolio.
The concept is simple, but retailers may find it difficult to decipher their own data. Also, the approach many companies take when optimizing their store base is too simplistic. They use an outdated model based on traditional retail in a new retail environment. In addition, many are slow to review their store portfolios, taking a reactive — not proactive — stance, thus limiting strategic options and resulting in inefficient use of capital.
An aggressive, analytical approach to store portfolio management drives value creation by using the right analytics, ongoing monitoring, and decisive action to keep stores competitive and profitable. This “dynamic approach” spurs action that leads to improved performance by enabling management teams to effectively manage exits, reframe store maintenance decisions, and anticipate investments in new stores.
The best-performing companies take advantage of a multitude of data inputs to understand the interconnected drivers of their success. Advanced analysis helps retailers unlock insights into their business in ways not possible only a few years ago. In today’s business environment, a rigorous, fact-based approach is required to manage all aspects of the enterprise. The time to make changes is now, before the “new retail train” leaves laggards.
The Call to Action for Retailers
In an article published late last year, we noted:
Retail survival demands creativity in tackling a shifting consumer mindset, advancing technologies, and competitive pressures that place new demands that did not exist 10 to 15 years ago… retail executives must show a willingness to do the ‘dirty work.’ They must engage in a process of continuous renewal that allows companies to restructure and revitalize — before it becomes a necessity3.
A large part of the creativity and “dirty work” involves strategic work on the store portfolio — an effort that demands investment in resources and time. Commitment to this effort can pay dividends by (1) providing critical information to decision makers, (2) improving brand and customer alignment, and (3) driving stronger bottom-line financial performance.
Investors, boards, and C-level executives need to examine their store portfolios with a new approach. Making decisions using outdated four-wall analysis is not enough. Unless retailers engage in the process of continuous self-renewal in store operations, marketing, supply chain, information technology, and other key drivers of retail success, they may find themselves added to the list of casualties.
The future of bricks-and-mortar stores is not as dire as many would have you believe. Retail is experiencing drastic change, certainly, but companies can (and must) adapt to the new paradigm. A proactive approach is needed. Store portfolio optimization is available for companies that want to analyze their business and ensure future viability.
1. US Census Bureau retail sales (excludes motor vehicles/parts, gasoline, food & dining).
2. US Bureau of Labor Statistics.
3. Bob Duffy, Keith Jelinek, and Steve Coulombe, “Retail Survival Requires Ongoing Restructuring, Revitalization,” Journal of Corporate Renewal (November/ December 2016).
Keith Jelinek is managing director of Berkley Research Group; Adam Malpocher and David Owens are directors of Berkeley Research Group, a leading global strategic advisory and expert consulting firm that provides independent advice, data analytics, authoritative studies, expert testimony, investigations, and regulatory and dispute consulting.
Timberland unveils new experiential store format
Timberland has opened a new concept store that will be completely transformed with a new theme and products every six weeks.
Called Timberland Tree Lab and located at King of Prussia mall, King of Prussia, Pa., the new store emphasizes storytelling and features curated product collections in a gallery-style setting. Sleek, angular design elements combine with minimalist product displays for a fresh and modern brand presentation. Fun displays, including an oversized, Timberland-style periodic table, casually reinforce the science of comfort behind the new technologies that go into the product on display.
While in the Tree Lab, shoppers can also sample a local craft beer (from Tröegs Independent Brewing) or enjoy a bottle of water that may one day be recycled into Timberland linings or shoelaces. The store associates, sporting custom Tree Lab hoodies, are on hand to connect visitors with everything from the latest style trends to local city events.
Tree Lab's opening theme is called Streetology, and is described as "where style for city streets meets hidden technology that's been tested and proven for long days (and nights) in the city." It showcases Timberland's new men's FlyRoam collection.
In late September, Tree Lab will be ramped with an installation called SHEvolution. The entire store will be dedicated to women, with a curated selection of boots and shoes. A holiday-themed installation will open in early November.
"The Tree Lab is more than just a place to shop — everything a consumer experiences from the moment they enter has been designed to enhance their visit, expand their horizons, and leave them with a great memory to go along with that beautiful new pair of shoes," said Kate Kibler, VP of Timberland's direct to consumer business in North America.
Tree Lab is one of several initiatives Timberland plans to introduce this fall. The brand also plans to open a series of "flex retail" stores across the country, starting with a Mall of America location debuting on Sept. 1. In addition, Timberland plans to open a specialty store in mid-August at the Stanford Shopping Center, Stanford, California, and one in the heart of Portland, Oregon, on Sept. 1.
Moody’s: Retail leaders outnumber the laggards
The retail industry is actually in better shape than some of today's headlines may lead folks to believe.
"Distressed [retail] names are growing, but still a small part of our rated universe," Moody's analyst Christina Boni told CNBC. "The broader industry remains fundamentally healthy."
Dollar stores, home-improvement chains, convenience stores and auto-parts retailers are among the leaders of the pack, according to the report.
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