When to close the store? Or change the location with a reduction in retail space?
21.09.2020 3351

When to close the store? Or change the location with a reduction in retail space?

Against the backdrop of store closures during the pandemic and even greater growth in online sales channels, the question of the efficiency of retail space can no longer be ignored. Moreover, no one - not small businesses, not industry giants. SR expert and our regular contributor Elena Vinogradova provides her own checklist for analyzing store performance, which will help you make the right decision: to close a store or restructure it by reducing the area or changing the location.

Elena Vinogradova Elena Vinogradova - Expert in sales and purchases in the fashion business. The author of a business blog for clothing, footwear and accessories stores on Instagram - @ fashion.business.blog.

After the news about the closure of 1 stores by the Indite group around the world and similar actions of other companies, a number of media outlets started talking about the decline of offline trading, the global crisis and the fall of everything and everyone. Let's see what's really going on:

  1. The economic downturn - yes, exacerbated by the pandemic - began at least a year before, and demand is shrinking.
  2. The share of online trading is growing every year and steadily. Millennials and Gen Z have chosen and are opting for online shopping, and the isolation has drawn older generations of consumers to the channel. The habits acquired during this period will influence purchasing behavior. For example, according to Criteo, on average 4 out of 10 Russian residents made their first purchase in at least one online store. Among the already mentioned Z and Millennials, the rate is even higher - 50%. Omnichannel retailers have gained more new customers, and their loyalty is very high. The probability that users who make a purchase from a new seller for the first time will stay with him further - 90%, of course, subject to correct delivery (fast, free / inexpensive), a comfortable price and a positive shopping experience.

Therefore, the reaction of development-oriented companies is natural: to analyze the effectiveness of offline and online even more carefully, be flexible, redistribute efforts between different channels, evaluate changes in the consumption scenarios of the target audience.

The same Inditex group made a decision not just to close it, but to restructure it. Instead of 1 stores, which even before the pandemic showed insufficient efficiency, 200 retail outlets will be opened in a new format. Plus, by 450, it is planned to increase the share of online sales to 2022% (in 25 this figure was 2019%), having allocated 14 billion euros for this. These intentions existed before, but now the situation is stimulating to act faster.

Therefore, cost optimization, including retail space, and business restructuring are a normal reaction of a normal company to the economic situation.

Let's take a look at what to do and what factors to consider when deciding to close a store. We start with financial statements. We need to consider objects that are unprofitable and potentially unprofitable based on the results of the allocation of indirect costs. And then we consider different factors of activity, for which you can use the checklist.

Checklist for analyzing store performance, general approaches:

  1. Analyze the influence of lease on the overall commercial result (separate the influence of lease and the influence of other factors), compare the share of lease in the studied object with a similar share in other stores or the industry average if there is only one store.
  2. Analyze traffic (flow past the store and the number of visitors, traffic quality).
  3. Analyze the correctness of the formation of the staff work schedule (the number of staff by the hour should be proportional to the number of checks by the hour).
  4. Analyze the dependence of the% fulfillment of the plan by day and the presence of a specific employee in the shift. Determine if there are personnel that explicitly inhibit sales.
  5. Check the correctness of the staffing table (compliance of the number of personnel with the level of sales).
  6. Conduct face-to-face monitoring of the quality of store operations through a visit to the store. What can be assessed in such an audit?

For example:

  • % of the presentation in the hall of the assortment available on the rest;
  • quality of price tags (correctness of information on price, discount, sizes in stock);
  • compliance of the layout with the approved planograms and current merchandising standards;
  • adherence to the standards of window dressing and sales area in the framework of marketing campaigns and sales;
  • compliance with the standard of informing buyers about promotions and sales;
  • compliance with service standards.

As you can see, many different factors affect the efficiency of a store, influencing which, you can improve the results of work, without resorting to immediately resorting to at least closing.

In fact, if there is complete order with operating activities, then the main factors influencing the decision-making boil down to two - rent and traffic (quantity and quality). Their change does not depend only on the owner.

Based on the analysis of each item on the checklist, we identify problem areas of the shopping facility. If there are several stores, we consider each separately. Next, we draw up an individual plan of measures to increase profitability (if a network - we make a plan for each such store), set tasks to eliminate the identified causes of loss.

Closing a non-profit store isn't the only response scenario. Traditionally, during a crisis, the market changes, new opportunities appear, including new locations. And if the predicted performance in the new location brings the store to the desired level of profitability (here we evaluate the strategic factor - traffic, first of all), then you need to use this chance to increase your market share.

Moreover, moving does not always mean maintaining or increasing the area. First of all, we are interested in improving the efficiency of a retail facility. Restarting a business is also possible on a smaller area. Recently, on my blog on Instagram @ fashion.business.blog, I published an interesting case on this topic from VM expert Irina Zabirko (in the portfolio - Gap, Familia, Podium): moving to the Mega shopping center to a smaller area (2/3 from the previous size) gave a 40% increase in sales. Of course, this was facilitated not only by traffic, but also by a set of measures for organizing the move: planning and analyzing the assortment, preparing the team, working with the client base.

Summary: the decision to close a store or change location should be as balanced as possible, based on an analysis of specific performance indicators. I wish you a correct assessment of the situation and competent decisions!

Against the backdrop of store closures during the pandemic and even greater growth in online sales channels, the question of the efficiency of retail space can no longer be ignored. Moreover, no one - not a small business, not ...
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