Some of the trade journal articles and blog posts suggest that e-commerce may be able to pick up the slack for retail --- in other words, if Ann Taylor closes 100 stores, the Ann Taylor website will be able to pick up some of the orders that disappear when the store is no longer operational.
Tread carefully, folks!
Retail, e-commerce, and catalog ecosystems are fundamentally different, based on the Multichannel Forensics projects I've analyzed over the years. Over and over again, I see the following:
- Catalog customers in Exurban/Suburban areas willingly transition to E-Commerce.
- E-Commerce customers in Suburban/Urban areas willing transition to Retail.
- Catalog customers in Suburban areas willingly transition to Retail.
- Retail customers (especially urban folks) are unwilling to transition to E-Commerce, but are very willing to use websites to research merchandise.
Simply run a Migration Probability Table against each store, and identify the stores that are in equilibrium/transfer mode with neighboring stores. Here's an example --- this brand has three stores in the market, and has an e-commerce website.
|Store 001||Store 002||Store 003||Online|
|Rebuy Index||Store 001||91.4%||33.2%||39.0%||30.9%|
What does the table tell us?
- Store 001 customers are unwilling to shop anywhere else. Close this store, and you'll lose the vast majority of the business generated at Store 001.
- Store 002 customers are very willing to shop at Store 001 and Store 003. Store 002 customers are not very willing to shop online. If you close this store, you'll likely recoup some of the sales in Store 001 and Store 003.
- Store 003 customers are willing to shop at Store 001, and to some extent, online. If you close this store, you may get some of the sales back online, but are more likely to get sales in Store 001.
- Online customers are likely to shop anywhere --- in any store or online. Strategically, you can use the online channel to acquire customers, because stores benefit from the customer acquisition strategy in future years.
Kevin - how about a different spin? Rather than look at existing stores, what about prospective stores, esp those where customer data is thin? In this economic environment, an argument can be made (and should be made) that ecommerce is a better investment than either opening new stores, adding more real estate, or even renovating existing space. A company like Williams-Sonoma, which has a mature store base and a stagnant ecommerce and direct business, has a difficult decision to make regarding investment and growth. The economics of investing in the online space oftentimes outweigh investing in the brick and mortar space. Most executives, especially retail ones that either do not have direct online experience themselves or on their management team have difficulty understanding that argument.ReplyDelete
Sure, your logic makes perfect sense.ReplyDelete
There are challenges when speaking to a retail CFO. The retail CFO knows that if he invests $2,000,000 to build a new store, that she will get $2,000,000 in sales next year, then 3% increases each year thereafter ... though the past twelve months make that argument harder to accept! The retail CFO calculates the NPV of future revenue in that store, and says yes/no.
Online finance folks have a much harder time making a compelling argument. If you spend $2,000,000 on website improvements, what do you get? And is what you get sustainable? If you spend $2,000,000 on online customer acquisition, you get a front-loaded return without the long-term business benefits.
My belief is that if the online finance leader were as good with numbers as the retail CFO, there would be more investment online. To-date, the pro-formas for the online channel have been fewer and farther between.
Can you elaborate on your comment re website investing as a separate post? Seems like it leads to a different conversation altogether.
In any event, orginal post, Macys and others are closing stores because they need to show they are "doing something" to their shareholders, and it looks nice on paper. In some cases stores did deserve to close(overlap, unable to compete). I don't believe recovery via .com sales played much part into it.
But I am curious---do you think a retailer would benefit from trying to make their unprofitable or even mediocre stores work? Seems focus is on the profitable ones, the top 10%. Growing sales in the top seems like it would have marginal impact, but trying to raise other stores might be better overall ROI.