Trading Spaces: Changing the Way Retailers Think about Stores

Retailers today must restructure their store portfolio and adapt to an integrated, multichannel environment to avoid the risk of joining the ever-growing list of brands disappearing from the high streets.

Retail sales volumes are slowing and profitability is under pressure. Add to this, the mindset of “more is more” that leads to overstoring and diminishing profit margins. So what should retailers do? Accenture recommends that to gain competitive advantage, retailers should remove their cultural bias toward expansion—in the estate footprint, physical store keeping units (SKUs) and online—and view store allocation in a multichannel environment.

While the long-predicted demise of the brick-and-mortar store is greatly exaggerated, there is no doubt that customers are migrating to digital channels in growing numbers. Retailers need to get their store presence right—not by closing down physical stores but by considering the entire purchasing ecosystem with a strong focus on profit. Retailers need to manage the virtual space with the same methods they apply to physical ones.

Successful retailing is about being an “editor of choice” for the customers.

• Retailers should evaluate the spectrum of offerings and ensure they are in line with their portfolio of stores—physical and virtual.

• Retailers who expand SKUs—in the face of declining profit margins—should consider that the “near-tail” (low sales per SKU) costs can be decreased by having only one stocking point in the whole chain or calling off the product when it sells from a wholesaler.

• In the “far-tail” (almost no sales per SKU), retailers should not stock such items. And if offering such products is essential, then it should be done via a third-party seller, with the retailer taking a commission.

Retailers can increase profit margins while delivering the right customer experience but they need to answer some critical questions:

• Is the store profitable? Add all online sales made by customers living in the local catchment area to the sales completed in-store.

• Does the shopping area in which the store is located have a viable midterm future (more than three years)? For borderline locations, retailers need to determine if there are local actions which they could support, such as the appointment of a town center manager, who could help transform the outlook for that location.

• For nonprofitable stores and nonviable locations, does the store play a critical role? Distribution network should be reconfigured to spread the cost without adversely affecting the group of stores.