Why Are Some Retailers Only Now Realizing They Have Way Too Many Stores?
Last month, Chico's announced it plans to close 250 stores.
Recently, H&M decided to shutter 160 locations.
Yesterday, Charlotte Russe said it will close nearly 100.
Of course, this is hardly a new phenomenon. In recent years, dozens of chains have concluded that a meaningful percentage of their stores are suddenly superfluous. I'm not talking about the selective pruning of the real estate portfolio that retailers have been doing for ages as leases come up for renewal and/or evolving customer behavior warrants walking away from a handful of locations (or relocating them). What Nordstrom, Williams-Sonoma and others have done recently is far from alarming. What Sears and many others are engaged in typically speaks to abject leadership failure.
Absent the recent injection of new management, if a retailer's leadership suddenly decides that 10% or more of its stores are no longer needed, we can be fairly certain of one thing: They have been asleep at the wheel. And why more boards and C-level executives are not taken to task (i.e. fired) for this is a complete mystery to me. Think about the following as you ponder brands that have taken an ax to their store fleets:
Was government legislation passed that suddenly made so many stores untenable?
Did a competitor emerge out of nowhere to crush the fundamentals of their business model?
What sea change in consumer behavior obviated the need for a strong physical presence in dozens of once-viable trade areas?
Far too often the harsh reality is that the underlying reason is management's lack of awareness, an unwillingness to accept the new reality and a failure to act before a crisis emerges.
The majority of time the bullet that killed all these locations was fired years ago. The rapid growth in e-commerce, the impact of digital on driving store traffic, the blurring of shopping channels, the collapse of the middle, the bifurcation of shopping vs. buying, etc. have all been obvious for many years. So if management is only taking aggressive action now, we can be fairly certain that that they have not been paying enough attention for some time and were too cowardly to act. Perhaps Blockbuster or Borders can be given a bit of a pass for not seeing the rapid and disruptive impact of downloading streaming entertainment services on their core business models. But if you are in the apparel business and aren't on top of what has been happening the last decade, there is simply no excuse. And boards and investors need to stop tolerating this nonsense.
In fact, there are plenty of examples of brick-and-mortar retailers that are successfully navigating the shift of power to the consumer and the impact of digital disruption. I wrote about them last week. These brands are seeing a renaissance because they realized they had a brand relevance problem, not a too many stores problem—and acted accordingly. They are winning because they saw their stores as assets, not liabilities. The notion that retailers can close massive number of outlets to create more profitable relevance is almost always a fool's errand. I keep asking for examples of retailers that have done so successfully and the din of the crickets is growing distracting.
Time will tell if these brands will be able to shrink to prosperity. For everyone else it's time for a gut check. It's time to do the hard, uncomfortable work of going from boring to remarkable. It's time to realize that, yes, the best time to plant a tree was 20 years ago and the second best time is today.
Courtesy : Forbes