November 03, 2014

When A Store Closes

If you really want to see the (complete lack of) power in the omnichannel business model, take a look at what happens in a market where you decide to close a store.

The secrets to your business happen in those markets.

Here's what you typically observe within the market:
  • 2012 Retail At Store = $1.00 Million.
  • 2012 Retail Via Other Stores = $0.40 Million.
  • 2012 E-Commerce = $0.20 Million.
  • 2013 Retail At Store Closed = $0.50 Million (closed mid-year).
  • 2013 Retail Via Other Stores = $0.50 Million.
  • 2013 E-Commerce = $0.20 Million.
  • 2014 Retail At Store Closed = $0.00 Million.
  • 2014 Retail Via Other Stores = $0.60 Million.
  • 2014 E-Commerce = $0.25 Million.
Let's compare 2012 to 2014.
  • 2012 Market Demand = $1.60 Million.
  • 2014 Market Demand = $0.85 Million.
We lose $0.75 million. The closed store generated $1.00 million.

In the omnichannel future presented to us by the experts, customers are shopping everywhere, using all devices and spending a fortune.

Then you close a store, and 75% of the demand from that store simply disappears. Gone.

If omnichannel had any power whatsoever, then the demand would still be captured, right? The customer wouldn't quit shopping, the customer would move to another store, or would transition purchases online.

But that's not what happens.

That's almost never what happens.

When a store closes, one of two things usually happen.
  1. 75%ish of the sales disappear, with the remaining demand recaptured among existing stores or e-commerce.
  2. In a multi-store market, 50%ish of the sales disappear, with the vast majority being recaptured by existing stores, and a minority of demand flowing back into e-commerce.
Why pay attention to this trend?

As retail demand leaks out into e-commerce (because retailers will work hard to become "more digital", and will continue to siphon demand out of the in-store experience into e-commerce), individual stores will look unprofitable. This will cause CFOs to demand that unprofitable stores be closed. Then, after unprofitable stores are closed, demand will not flow back out into other channels, growth will stall, and all sorts of chaos ensues.

Run the query for yourself - look at what happens to e-commerce demand in markets where you close stores. This is the future that omnichannel is going to give us, if it continues down the current path.