April 09, 2017

What Happens To Online Sales When A Store Closes?

If you are a retail brand, you actively measure what happens when a store closes.

Every market is different, of course. Closing a store in a market with six existing stores is very different than closing a store in market 400 miles from the next-nearest store.

Here's a case of "the latter" courtesy of a recent project.

Annual Sales Change At Time Of Closure:
  • Online = +6%.
  • Total Retail = -5%.
  • Total Sales = -0%.
This store was a victim of online cannibalization ... a decade of online gains and retail losses yielded a market with no sales change and a dying store. Management decided to close the store.

One Year Later:
  • Online = +8%.
  • Total Retail = -93%.
  • Total Sales = -48%.
Look at that. Online grew at historical rates ... sales didn't just shift over, did they? And because there isn't another store nearby, total retail sales dried up. Sales in the market were cut in half.

Two Years Later:
  • Online = +6%.
  • Total Retail = +30% (on a very tiny base).
  • Total Sales = +8%.
Now look at this one.

Three Years Later:
  • Online = -6%.
  • Total Retail = +9%.
  • Total Sales = -4%.
Without the store in the market to feed customers to the online channel, we observe that the online channel loses sales. A brief increase is followed by slowing growth and then a sales decline.

Friends, please analyze the living daylights out of this dynamic. As Traditional Retail implodes, stores are going to close. This does not mean that your online channel will increase even more. Too often, the reason the online channel grows is because the retail store does a good job of recruiting customers. Take away new customers from retail stores, and you take away future online sales growth.

P.S.: If you need help measuring this dynamic, please, give me a holler (kevinh@minethatdata.com).