Store Expansion Back on the Agenda for 2011

Jan 24, 2011
Tom Ryan

Retailers appear to be back in expansion mode. According to the
ninth annual Retail Horizons: Benchmarks for 2010 report from the NRF and KPMG
LLP, 41 percent of retailers intend to increase domestic store expansions in
2011, up from 25 percent in 2010. Additionally, 25 percent will expand overseas,
up from 21 percent a year ago.

Signaling a consensus that the worst is behind
them, 58 percent of the 318 retail executives surveyed report that cost reduction/cost
containment will remain a companywide strategic initiative, down from 81 percent
in 2010.

One dramatic change is that 69 percent identified mobile e-commerce
or m-commerce as a strategic initiative, up from only 28 percent a year ago.

“It’s quite obvious retailers are anxious to put the recession
behind them and build upon their customer service initiatives, enhance their
mobile platforms and even grow their footprint,” said Katherine Mance,
Executive Director, NRF Foundation, in a press release. “As we move forward
in 2011, retailers will strive to keep costs low, but will also continue to
focus on providing positive and unique shopping experiences for their customers.
This year’s
report paints an encouraging picture of the coming year for both retailers
and consumers.”

Among other findings:

  • About three-quarters (74 percent) of retailers in 2011 will increase their
    consumer insight and data gathering initiatives, up from 65 percent in 2010.
  • Seventy-nine percent of retailers report using Twitter, up from 61 percent
    in 2009. An additional 18 percent plan on using the social networking site
    for their e-commerce program during the next 18 months.
  • In reviewing customer insight initiatives, 78 percent of the execs ranked
    customer loyalty programs first, up from 65 percent a year ago.
  • Three-quarters said customer service would be a top priority in 2011, up
    from 56 percent.
  • Eighty percent of retailers surveyed said leadership development will be
    a top priority in 2011, up from 69 percent in 2010.
  • Among supply chain initiatives, greater focus will be made for optimizing
    the distribution network, increasing from 38 percent in 2010 to 52 percent
    in 2011, and for cross-docking, up from 17 percent to 24 percent.

Discussion Questions: What should retailers have learned from past ramped-up expansion efforts out of downturns? How do you think retailers’ spending priorities will shift in 2011 with the economy showing some recovery?

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12 Comments on "Store Expansion Back on the Agenda for 2011"

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Dick Seesel
10 years 3 months ago

The retailers who remain expansion-oriented can make a more aggressive posture work within the context of only modest growth. There will continue to be opportunities to pick up real estate very cost-effectively at others’ expense, as well as expanding new small-footprint concepts. There are still several years ahead where the overall real estate picture is cloudy at best, so some reshuffling of inventory between the “haves” and “have-nots” is a healthy way of forming a bottom on property values.

Roger Saunders
10 years 3 months ago

Retailers that prudently managed cash over the past two years will now be opportunistic leasees. And, their new landlords will be pleased to have merchants who can and will pay that monthly stipend.

Real estate, owned or leased, is an asset that has to be used and managed effectively. Successful retailers who expand space in 2011 have used their consumer insight data to capture better and better understanding of “in-store” impact on purchasing. The strong are going to get stronger in this arena, and the laggards are going to try to catch up.

David Livingston
10 years 3 months ago

My business is tied to retail expansion. I only saw a downturn in the last half of 2008. Starting in 2009 I saw the economy was recovering quickly and good retailers were taking advantage of low interest rates, cheap rent, and the failure of weaker competitors. In 2010 this trend continued so for right now, I foresee 2011 as being in full economic recovery. The only thing missing is jobs, but eventually people will get motivated to opt back into the workforce.

One thing learned was that economic downturns are only temporary and good companies need to ignore the current economic state and plan for the long term. Both good and bad economies create opportunities for growth.

Gene Detroyer
10 years 3 months ago

Everything in this survey makes sense except store expansion. If “store expansion” means ultimately adding retail space these retailers should take great care. The future is not the past and the days of great retail growth will not return. The consumer spending boom of the last 20 years was financed not by economic growth, but by extraordinary debt financing by the consumer. It was built on sand not a solid foundation. The savings rate continues to be positive, which really means that consumers continue to pay down debt.

U.S. retail square footage was overstored in the best of times by 50% or more. For retail to be efficient, it must decline. The greatest area of retail growth will be continue to be online and as the internet generation ages, buys homes, and starts families, online growth will only accelerate. The Boomer generation, which has the highest propensity to store shop, has already bought most everything they need for the rest of their lives.

Fabien Tiburce
Fabien Tiburce
10 years 3 months ago

I think this is great news, especially if the growth we are taking about is “smart” growth. Smart growth would be growth more closely tied to the smaller store formats customers look for. Smart growth means lean and mean operations and the use of mobile technology throughout the organization. Smart growth means stores operate efficiently and truly represent the brand, its standards and message. Smart growth is nimble and agile. It requires a different mindset and some new tools.

Gene Hoffman
Gene Hoffman
10 years 3 months ago

What the recession and technology have shown us over the past few years indicates to me that this is a good time to re-invent the supermarket. Overstoring of similar formats in most retail sectors has not been a panacea for the retailing industry.

Today, the economy appears to be strengthening and new technological, sourcing, and communication methodologies have arisen. Isn’t it time to apply them to bring about a new innovative paradigm in retailing?

Bill Emerson
Bill Emerson
10 years 3 months ago
Gene is absolutely right on. As I pointed out in a recent post, America was and is grossly over-stored in the best of times. There is over 45 square feet of retail selling space for every American man, woman, and child. In Europe, that number is around 2.5 square feet. eTail is now over 12% of total and growing around 25+%/year. The demographics of future sales growth are demonstrably online. Yes, there is lots of cheap real estate out there. It’s also true that in a multi-trillion dollar retail economy, there will be lots of winners and growth stories. But 40% are considering “aggressive” expansion? The fact is that, while there is improvement, retail still not has achieved 2008 volume levels for most retailers. Unemployment is still stuck in the 10% range and the internet continues to gobble up market share (ask the folks at Barnes & Noble). Signing leases, adding staff, inventory, and distribution costs just doesn’t seem like a really good use of working capital, at least not to me.
Anne Howe
10 years 3 months ago

I’d like to see growth in experience opportunities vs. more lean and mean operations! It’s hardly fun to shop any more. I’d also agree that better store locations should trump expansion and that smaller footprints are a good bet. I’m pretty much done with the superstore format, finding them too large to meet my needs!

Gordon Arnold
10 years 3 months ago

Most retailers are in a tailspin from fiscal year 2010. As many of us recall, the third quarter was supposed to be the time of turn around. Well that did not happen and it still has not happened. Many large companies are gone and some of their stores were closed in spite of doing well in this depression. This is the opportunity that is being responded to. And this is an economic adjustment or leveling instead of growth.

Ed Rosenbaum
10 years 3 months ago

Retailers I am working with are planning the following for 2011:
1 – Store expansion with some under performing locations being shut down.
2 – Growth in areas where there is need for more locations.
3 – Picking up competitors closed locations at a lower rate thus filling the inventory of space availability. Rates are still competitively lower.
4 – Spending significant dollars remodeling and repairing what has been ignored the past few years. This helps the vendor network increase business they have lost since the recession began.

Mark Burr
10 years 3 months ago

Growth and expansion of stores at the rates we have seen are likely years from returning to the past numbers. From where I see it, retailers will be focused on reformatting or closing underperformers. They will enhance existing locations through remodeling and new selections to increase existing store share.

The lock on capital is likely to remain on for a while yet. With what dollars are available, smart retailers will use it wisely to expand and improve existing locations. Real organic growth as a driver will be several, if not many years out.

Retailers, just like consumers, remain pensive due to the current uncertainties. That alone will keep growth levels to a minimum.

Kai Clarke
10 years 3 months ago

We will see some better growth in 2011, but these numbers seem to be a bit too positive. Store expansion is the direct result of business exceeding the confines of stores as they currently exist. This would generally point to record years, since many stores have excess space or property. We have not reached “record” performance levels yet, and these numbers really do not have the ability to hold up to close scrutiny.


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