Many retail real estate professionals are facing a new reality: retailers simply aren’t expanding at the rates seen in the past. In fact, many are navigating the task of “rightsizing” store networks, which is unfamiliar territory for most.
Real estate professionals are comfortable with the process of opening store locations. They know what to look for and what questions to ask. But determining when to close or relocate stores – in a way that maximizes revenue and accounts for online sales – requires a new set of analysis.
If your company is preparing to rightsize its store network, here are some important questions you should ask:
What’s the expected sales transfer from a closed store to remaining stores?
If you close a store, it’s likely that at least some of the customers will continue to shop with you – provided there is another location within a reasonable distance. In order to determine which stores make the most sense for closure, you need to understand the sales transfer potential of each store and how that number compares to the store’s current lease obligation and operating costs.
How do your brick and mortar stores and online sales interact?
It’s important to know the relationship between your physical stores and online sales. Do your physical stores act as “advertising” that drive customers to shop online, or do your online customers tend to purchase regardless of whether there is a physical store in the trade area? The answer isn’t the same for all brands, so you need to know your unique channel relationships to make good real estate decisions. If physical stores are an important driver of online sales, perhaps it makes sense to consider smaller footprint spaces that act as showrooms with low overhead costs, or to have a few large stores that can act as fulfillment centers for online sales.
Does it make sense to relocate a store rather than closing it completely?
As you analyze existing store performance, you may discover stores that are good candidates for relocation rather than final closure. Perhaps a store is still in a good market, but the shopping center has become dilapidated or the trade area has shifted slightly. Repositioning these stores can reinvigorate sales and maximize sales revenue.
What is the cumulative effect of multiple relocations?
To make accurate decisions, you can’t evaluate openings and relocations in isolation. You need to evaluate the total scenario rather than individual decisions to determine the combination of openings and relocations that maximizes performance.
Rightsizing store networks isn’t easy, but by asking the right questions and leveraging analytics tools, you can lay a foundation for continued business success.