What does it take to thrive in an over-stored marketplace?

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May 24, 2017

Through a special arrangement, presented here for discussion is a summary of a current article from the Mark Heckman Consulting blog.

In my view, the over-storing of America is perhaps the most immediate and imposing problem facing retailers, especially those who have invested heavily in expanding their physical footprint over recent years. Pressure from Amazon.com and others online further suppresses the productivity and need for new physical stores.

Given this situation, which does not appear to be finding equilibrium any time soon, retailers need a radical change of focus and success metrics aimed at customer growth rather than store growth.

Shopper metrics: Measurements, such as new customers, customer share of wallet, transaction size and repeat transactions, all become worthy of becoming Key Performance Indicators, (KPI’s). These metrics focus upon the shopper, not the store. Further, in this new metric paradigm, customer lifetime value should supersede store related metrics like dollars per square foot, same-store sales and store volumes as the key standards of success.

Easy-access in-store merchandising: Physical stores must match the same level of efficiency shoppers experience online. Items that sell the most must be within easy grasp of the passing shoppers as they shop the store according to their needs. This approach stands in stark contrast to traditional merchandising that places priority on “manipulating” the shopper’s footsteps through the store by placing key categories and items in all corners of the store to insure shoppers must traverse more of the store’s aisles and departments.

Merging online/offline: Stores that survive and thrive will not only view their shoppers holistically across both physical and online touch points, but reflect this approach by offering access to online options to the in-store shopper. Progress is evident in this area among several retail channels, with home delivery, BOPIS and with kiosks enabling shoppers to buy additional items not stocked in the store. Shoppers gain faster access to products, more efficient trips, and a new array of purchase options that do not exist currently.

Smaller and more efficient stores: New stores will be built, but they will be fewer, smaller and smarter, with less inventory and more shopper-friendly layouts.  Those stores that are not will likely join the growing list of closures that have dominated retail industry headlines in recent months.

DISCUSSION QUESTIONS: Is traditional expansion through new stores becoming more problematic or even counterproductive for many retailers? What do you think of the adjustments suggested in the article?

"The immersive nature of the store experience is a massive potential opportunity for retailers that few brands are exploiting."
"The truth is we have five times more of everything than can possibly be profitably supported by the marketplace. Differentiate in EVERY way possible."
"Yes we are over-stored. But the real issue is a shakeout in the weak brands."

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22 Comments on "What does it take to thrive in an over-stored marketplace?"

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Mark Ryski

I completely agree with Mark’s premise — to a large extent retail is overbuilt, with too many retailers chasing a finite universe of consumers. Dick’s Sporting Goods’ recent announcement that it will slow store expansion is a reflection of this sentiment and, in my opinion, the right approach for the times. Mark makes a number of strong points in his article, but one metric that I would add to the list is conversion rate. Conversion rate focuses attention on serving the shopper in the store. While conversion rate is gaining traction as an important metric, far too many retailers today do not measure it or focus their field managers on it to the extent that they should. As a result, many retailers are squandering the precious traffic they do receive in their stores.

Dick Seesel

In business school many years ago, I took a retailing class from a marketing professor who often said, “There’s no such thing as ‘over-stored,’ but under-retailed.” Obviously the glut of square footage is an even bigger problem than it was in 1977 given the development of exurban sprawl, big box stores, new mall formats, retail consolidation and (of course) e-commerce. But the teacher’s point still has relevance today.

Some stores continue to have a good chance to expand their physical footprint. (There has been recent comment, here and elsewhere, about chains like Zara and Uniqlo being opportunistic about picking up others’ sites.) But growth for its own sake means nothing without a clear brand identity, coherent merchandising and smart use of technology to drive loyalty and omnichannel initiatives.

Tom Erskine
1 month 27 days ago

The immersive nature of the store experience is a massive potential opportunity for retailers that few brands are exploiting. How many consumer brands can get consumers to come spend time with them on their own turf? Of all the metrics mentioned above, where is the measure of customer satisfaction (e.g. NPS) associated with the experience? Until brands shift their store mindset from “transactional” to “experiential” they’re not going to be successful.

Lyle Bunn (Ph.D. Hon)

Being over-stored has been the ongoing state of our society/economy for a long time and online supply has simply added to this. Retail will continue to encourage spending and gaining share of wallet. How these are achieved is changing. The store must be more worthy of consumer time and effort. Service, value, discovery, engagement, alignment with values and lifestyle and participation in communities based on shared interests are the distinguishing elements of retail in a world of increasing buying options.

Phil Masiello

I absolutely agree that the focus needs to be on the LTV of a customer over a store’s performance. This is an adjustment in focus by the brands but one that is much needed.

Yes we are over-stored. But the real issue is a shakeout in the weak brands. Operators who have a clear point of difference to the consumer will continue to exist and thrive. Retail brands that are not in touch with their customers will perish.

Ian Percy

Exactly Phil. We share the same perspective.

Ian Percy

I’m surprised the concept of “differentiation” wasn’t mentioned, though perhaps it was implied. In most business sectors we seem to share the DNA of lemmings. The “me too” mindset has us all selling the same things, using the same techniques, wanting to be in the same place, playing the same pricing game and on and on. It’s like shopping in Mexico.

The truth is we have five times more of everything than can possibly be profitably supported by the marketplace. Differentiate in EVERY way possible: location, look, merchandise, marketing, customer relations, staffing. Those who think differently — and turn that thinking into a unique reality — will ultimately win.

Bob Amster

Well, “expansion” does not necessarily mean profit growth. It can mean dilution too because there is a fixed number of shopping dollars to be had. Private companies are not under the same pressure to grow, they need to be profitable. Consequently they should pick their spots carefully and measuredly and, as the article points out, there needs to be more focus on customer metrics in addition to store metrics. I am not sure I agree with “smaller … ” stores. If a retailer will have fewer stores in more cost-effective locations, maybe the stores can be larger so as to offer a wider assortment of products to the customers who may be forced to travel longer distances to shop them.

Art Suriano

I agree with Mark’s points, all well stated. Too many retailers today are addicted to opening stores despite all the store closures. Years ago most retailers opened stores because they were doing well and saw the potential to increase their market. Today I am appalled at the short-sightedness of many retail executives who despite their poor store performance and sales insist on opening more stores. These chains are destined to fail.

Technology has and will continue to change everything. I agree that the stores of the future will be smaller and I also see home delivery getting so fast that there will be less need to purchase an item in-store because once it is purchased it will be there waiting for the customer by the time they get home. So retailers today should be thinking hard before they just open stores.

Retail CEOs need to take a good hard look at their company and if it is successful then they should open stores that match today’s consumer demands. If not they should focus on the problems first, like improving customer service and creating a stronger omnichannel experience. Only after they begin seeing positive results should they consider expanding.

Jasmine Glasheen

There’s no point in opening stores without a heavy dose of excitement surrounding the openings. For this reason, store expansion is going the way of pop-up shops and events rather than expanding traditional square footage. I would add “Can’t-Miss Experience” and “Cross Channel Promotion” to the above metrics.

Anne Howe

Customer growth that can be tracked back to improved engagement, consistent purchases, referrals to others and true affinity for the brand will be the measures of sustained success for each and every retail store. Even those with a highly-curated selection of merchandise can succeed in the new “right-sized” retail landscape.

Brandon Rael

The premise that there is an over-abundance of retail has become a hot topic. Yet one thing that we all know and can agree upon is that we are clearly in the age of the customer. The customer experience and journey has to be at the forefront of every discussion about merchandising, assortment, store operations or strategy.

In addition, it is essential for retailers as they expand strategically to provide a superior employee experience, as there is a direct correlation between taking care of your employees, building a sense of loyalty and in turn providing an outstanding customer experience. It is service, personalization and an outstanding customer experience which will enable the brick-and-mortar stores to remain relevant, trendy and profitable.

Lee Kent

An in-person experience, done right, is a great way to build brand relationships and grow business. The problem today is too much square footage, not enough knowledgeable staff and frustrating, same-old experiences. There’s nothing to make the shopping experience easy, enjoyable or memorable in a good way. OK, yes, there are some retailers who have found the secret sauce. Successful retailers are still expanding through new stores. Look at Aldi and others. That is not the issue. Retailers must focus on the right formats and on the experience they are delivering in order to be effective. Mark makes some great points about this in the article.

For my 2 cents.

Ralph Jacobson

Those retailers that have true brand affinity with consumers seem to have little trouble attracting shoppers. We can all think of examples of such retailers. For the others that rely primarily on “location, location, location” there needs to be more site network analysis to determine the size and inventory levels required to drive the right number of turns in order to make the stores productive.

I also think that combo stores, that is, two non-competing but complimentary stores in one facility, have not been optimized yet. This is not the store-within-a-store, but two retail brands with equal billing. This is a way to drive the audience of one retailer to the other and secure cross-shopping revenue.

Ricardo Belmar
One topic we have yet to approach in this discussion of retail being “over-stored” is a two-sided issue. One side relates to the product and customer demand. In a quest to differentiate we are seeing countless variations in certain product categories that simply do not perform well because customers just don’t want them — no amount of merchandising will sell something undesirable. The other side of this has to do with identifying the inflection point for each retail brand at which they will have too many stores. This will vary by category and brand. These examples are playing out in front us right now — department stores closing more and more locations while fast fashion and off-price formats are expanding. When we compare product demand against number of stores and the reach each store has to their customer base, we find that some brands can claim not enough stores while others have too many. This emphasizes the need to understand who your customer is and how they shop. Clearly consumer taste is changing and how we all buy and what we buy is having an immediate impact on store counts. On the discussion of needing new metrics — I couldn’t… Read more »
Brian Numainville

I totally agree that metrics need to move from the main focus on old-school transactional measures to focusing more on the shoppers AND their satisfaction with their shopping experience. In addition, the old construct of pulling shoppers through a maze to get them to buy certain things is well past its prime. Shoppers online can easily find what they are looking for and stores need to be structured in the same way. This will become even more important as we evolve into the future as shoppers being brought up online will expect this of all shopping experiences. Finally, differentiation is key — if I am in an over-stored market, I am going to head to the retailer that stands out and is unique.

Pavlo Khliust

The traditional expansion is indeed counterproductive. I share Mark’s point of view that retailers need to change their approach. They need to make their stores more customer-oriented, focus on building their unique brand identity, implement omnichannel solutions in their marketing strategy, etc. Focusing on quality over quantity per square foot of their brick-and-mortar presence will positively impact the LTV of each customer in the long run.

Craig Sundstrom

I’m not sure I’d call the “shopper metrics” mentioned new. Obviously store-centered metrics will go away as the stores do, but companies have always had one goal — profits — and have had various (other) metrics like gross sales, returns, headcount, etc. that they monitored toward achieving that goal. Those aren’t going away. As for merging online and offline: well sure, but how can retailers do it profitably? This is an end, not a means.

gordon arnold

A quick drive around town might show that the surplus of retail stores we have might be due to the frightening number of businesses that are gone or going away. The malls with their penthouse rental rates remain the most affected as our price-driven market has little tolerance for a lavish all-in-one place to buy a pair of blue jeans.

A full and uniform merger of e-commerce and brick & mortar will put pressure on companies to build or rent and remodel for online shipping cost controls and BOPIS business. For small businesses still out there, they know that it is imperative to supply the local product and service items in demand that the bigger retailers can’t or won’t land.

Ken Morris

In today’s competitive retail climate, retailers need to be hyper-strategic in new store expansion and site selection, as mistakes can be costly. They also need to be careful not to close stores prematurely based on flawed analysis.

Sales attribution is becoming a complex issue with the advent of cross-channel shopping. Omnichannel retailing is, or should be, changing the way retailers evaluate their business performance. We shouldn’t be attributing sales to a specific touch point like the “last-touch” model, as the consumer’s decision process is often impacted by many brand interactions — not just the last one. A better approach is to look at it from a holistic perspective — measuring sales by “markets” instead of individual stores or online vs. in-store.

The risk is that retailers may close physical stores that are unprofitable on paper but may be contributing to online sales – via showrooming.

Julie Bernard
There are strong traditional arguments in this piece, to be certain. Especially for the mobile-savvy modern shopper, creating omnichannel experiences focused on select and carefully curated inventory that merge digital and physical approaches to product and engagement with brand associates is the wave of the future – and has been a core focus for most large-scale retailers for the past decade. The vision has been there; progress in realizing that vision has been slow. Missing at times from this conversation, however, are the sometimes vast differences between types of brick-and-mortar stores. In short, the aspirin aisle is a different kind of candidate for the mobile-first moments of online–offline omnichannel anticipatory inspiration than the shoe department or the dress boutique. In the case of what we might call the list-and-basket shopping environment — think, personal-care stores, home goods and groceries, and the like — retailers would do well to foreground easy access to high-volume items and location-data informed shopping patterns in ways that the dress shop needn’t (and shouldn’t) consider. The dress shop draws on data access for deep insights into customer behavior, creating surprise and delight around highly personalized items that make the consumer feel unique with a personal sense of style.… Read more »
Dave Nixon

It’s not just overbuilt, but inefficient. Retailers that create “experience centers” that are directly integrated with digital will win in both OpEx and CX. The store needs to become a destination space for the physical experience (for those brands where shoppers won’t click “buy” without some physical validation), but efficient in the delivery of the product experience in an optimized footprint (you don’t need every SKU of every item in every option). If physical retail can help shoppers see themselves owning the item, and how they transact to receive /buy/procure/deliver it is flexible, retail will flourish again.

"The immersive nature of the store experience is a massive potential opportunity for retailers that few brands are exploiting."
"The truth is we have five times more of everything than can possibly be profitably supported by the marketplace. Differentiate in EVERY way possible."
"Yes we are over-stored. But the real issue is a shakeout in the weak brands."

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