The following is a guest post from Lee Peterson, executive vice president of brand, strategy and design at retail design firm WD Partners.
If you are a retailer, 2018 likely includes one unavoidable burden: You must close some stores, maybe even a lot of them.
Yet you’ve long approached this grim task with an attitude of indifference. There was little in the way of a store-closing strategy, save for this: cut your losses and move on — fast. As for loyal customers left behind, utter abandonment might sound hyperbolic, but it’s probably a fair description of how loyal shoppers were treated.
With efforts at customer retention generally scant, if they existed at all, a store that might have shaped a vibrant commercial corridor or Main Street for decades ends up a blighted empty shell with barely a second thought. Even symbolic gestures aimed at retaining customer relationships spanning generations are rare.
The consequences of this thoughtless approach have long been obscured. Often retailers could close a store in once commercial center and reopen in another to little effect. But the decades-long store opening binge is over — and the costs of store closings now directly impact online sales. Indeed, with 2018 a time for shrinking one’s physical footprint not expanding it, the time has come to retire the counterproductive approach to store closings.
Rethinking the role of the store
It’s time to recognize the role of stores in driving enterprise-wide sales, especially within online channels.
As recent studies have suggested, a store’s role in a specific market area extends far beyond the sales booked inside its four walls. A once pure-play online retailer can see gains when it opens a physical space. New research even suggests when a new store opens, traffic to the retailer’s website from the surrounding postal area increases by 52% on average within six weeks of opening.
"The symbiotic relationship between a brand’s physical and digital presence must be carefully managed, especially if brands are shrinking their physical presence."
On the flip side, ponder the irreversible impact of a bank branch closing: Business with customers in the immediate area for other financial services — mortgages, car loans, etc. — almost immediately stop. Even starker, strong anecdotal evidence suggests when a regional department store completely exists a city, online sales will decline rapidly to virtually zero.
The takeaway is clear — the symbiotic relationship between a brand’s physical and digital presence must be carefully managed, especially if brands are shrinking their physical presence. Store closings cost money, for sure, but beyond the sales once booked at a location, there’s the loss of a foothold in key neighborhoods and market areas. It can lead to a double-whammy to sales, and a death spiral to brand loyalty. After all, these footholds are about much more than transactions. Each store is more than a place of commerce. It acts the same way a billboard does, reminding people of a brand, acting as a nudge when a consumer needs a new suit or a pair of socks.
Judging stores strictly through the lens of same-store sales conceals the intangible influence a physical footprint has on online sales. When store closings lack any proactive elements to address customer abandonment the costs can be high. Handled more wisely, it’s possible to capture some (though not all) of a store’s value, effectively transitioning it to the online world. Instead of watching helplessly as this value dissipates, it’s possible to capture it.
A cautionary tale
In 1970, the Lazarus department-store chain (which was later absorbed into Macy's) opened in an affluent inner-ring suburb of Columbus, OH. By 2005, after a series of mergers, local customers came to love this Macy's. The store had long been rumored to be on the brink of closing, and inevitably in the spring of 2015, it at last did — and unceremoniously, at that.
There was little in the way of a transition strategy. One day the store was there, a fixture of the community and a reliable outlet to buy a last-minute gift or a wardrobe staple. The next day, it was gone, never to return. Even the Macy’s sign was dismantled in the months after it closed, the faint outlines of the logo visible until the weather wore it away and it was nothing more than an eyesore reminding people of better days.
"Given the proper foresight back in 2015, Macy’s might have opened a smaller, 5,000-square-foot space in the immediate market area, or even a BOPIS depot."
Prior to this closing, the brand enjoyed a loyal customer base spanning generations. In this self-contained suburb, it was the only department store, with the closest competition miles away. In other words, it enjoyed a veritable monopoly over convenience-driven and last-minute purchases in a very specific trade area. If a local needed a pair of socks or pantyhose, there was never any question of where the closest place to find such items was. In a way, you might say this modest, two-story department store was ahead of its time. It was, in effect, offering the equivalent of Amazon’s same-day pickup service.
Now consider this counterfactual: Instead of up and hastily leaving this massive 108,000-square-foot store, executives instead opted for a more innovative and unconventional store closing. Given the proper foresight back in 2015, Macy’s might have opened a smaller, 5,000-square-foot space in the immediate market area, or even a BOPIS (buy online pickup in store) depot. With a customer base unwilling to make the miles-plus drive to the next closest Macy’s, this depot might have provided the standard basics purchased for years right in the neighborhood. Or if a loyal customer saw an item available online at the next nearest Macy’s department store, it might have delivered the same item to this BOPIS outlet within 24 hours. (How expensive would a one-courier trip from the nearest Macy’s, daily, for at least 365 days, really have cost anyway?)
If opened a few weeks or even months before the larger store had closed, it might have successfully converted its thousands-strong shopper base to a new consumption model. Sure, these would have been abrupt changes, but arguably not as abrupt as a brand being a staple of the community one day and then completely gone the next.
Using the 'showroom store in-fill strategy'
Truth is, a brand can pay a fraction of the cost of running a large traditional store, while still maintaining a brand’s physical presence. With a close intimate relationship with a customer base, there were plenty of options on the table. At WD, our analysis of the negative effects of the abandonment approach prompted us to find a better way. Over the course of a few months, we’ve developed the "showroom store in-fill strategy," isolating effective retention tactics to help brands transition stores sales to online sales before shuttering a store.
For example, we advise offering customers a stack of free shipping coupons for same-day delivery to the BOPIS depot, or surveying customers about what key, staple items they would likely purchase at a smaller outlet in the neighborhood. With this smaller, yet valuable product assortment, a brand could maintain a toehold in a market area and better transition a customer base to online sales.
"We know, with almost absolute certainty, the store of the future will be some iteration of a showroom store. "
This soft-landing approach to store closings demands a test-and-learn attitude. Maybe your brand isn’t ready to execute an in-fill strategy for every store slated for a closing this year. But testing the tactic can yield important insights. For example, when closing a handful of stores in a specific city, test the viability of a BOPIS outlet or showroom store in a specific trade area. Track how online sales fare in this area compared to the utter abandonment approach of year’s past.
We know, with almost absolute certainty, the store of the future will be some iteration of a showroom store. Opening a showroom store in a community where your brand already has a loyal customer base, a trained labor force and a supply-change system at the ready makes for a far easier and more profitable transition.
The value of a showroom in-fill strategy isn’t proven for every retail category and brands. But it is undoubtedly a far better option than utter abandonment. The failure of store brands to more enthusiastically embrace showroom stores could cause massive hurt in 2018.
Opening a showroom store or a BOPIS outlet whenever you shutter a store might be the only path to surviving the looming retail apocalypse and keep loyal customers from immediately fleeing to Amazon. Transitioning to the store of the future now requires retailers to more effectively close the stores of the past.