BrainTrust Query: Zombie Stores and Zombie Departments
By Ted Hurlbut,
Principal, Hurlbut & Associates
quite a bit written over the past few months about retailers reducing
inventories to better align sales in the wake of the business downturn,
and of assortments being cut back as well. But as I’ve traveled stores
in the last month or so, particularly in the couple of weeks as we
start into the summer clearance season, I’ve been struck by the impact
these reductions have actually had on stores themselves.
Go into just
about any discounter (Wal-Mart included), category killer or other big
box, and it’s hard to overlook. Racks with only a couple of pieces on
them. Shelving below display stock with only one unit, if that. Twelve
inch peg hooks with only one or two units in front, and ten empty inches
behind. Shelves that are bare, corners that look like time forgot, completely
empty floor space as a result of racks and other fixtures having been
In stores ranging
from 20,000 square feet right on up, empty space. And you can almost
hear the question being asked in the corporate headquarters: If business
doesn’t bounce back, if this is this the new baseline, the ‘new normal’,
if we no longer need all that inventory, what are we going to do with
all this space?
has created zombie stores, stores that appear to be alive, but that are
really dead. In good times, in every chain there are below average stores
that only generate 70 percent or 80 percent of the average store, but
are still four-wall profitable. In this downturn, with sales in some
of these weaker stores off by as much as 10 percent to 20 percent, these
stores are now four-wall cash drains.
retailer is pursuing every opportunity to renegotiate lease terms but
not every property can successfully be renegotiated. What’s
left are zombie stores, space that can’t pay for itself, and retailers
aggressively seeking to reduce expenses even further in those stores
to minimize the cash drain.
But the issue
doesn’t end with zombie stores. The recession has also created zombie
departments. In every store, there are departments that generate sales-per-square-foot
that are only 60 percent to 70 percent of the store-wide average. In
good times, if the cost-per-square-foot in these departments was fully
loaded, they’d be marginal four-wall contributors at best. Now, they
are also cash drains, and in many cases have been further paralyzed in
their ability to generate sales by deep inventory reductions in both
depth and breadth.
And then there’s
the space throughout the stores where there used to be racks and fixtures,
that now sits idle and isn’t generating any revenue at all.
have been taking steps to address this issue, particularly Wal-Mart and
other discounters who were rapidly expanding grocery departments long
before the recession began. Other retailers have increased ownership
in unrelated, high-impulse items. But for many others still, the issue
remains unresolved, without any obvious answers.
How will the ongoing inventory rationalization reshape square footage
allocation at the store level? What should retailers, especially larger
ones, be doing with the excess floor space?