Closing stores treats symptoms, not the disease

closed storesIf media reports are to be believed, there is an apparent rush right now for underperforming retailers to close stores. Blaming high rents as a major cause of their problems, they radically prune their distribution capabilities as if relegating shop space to a cost centre rather than a profit centre.

At one time these retailers were happy to sign the very same leases they now refer to as onerous. So what’s changed?

Don’t get me wrong, there are legitimate – although rare – reasons why closing a store and exiting a catchment area makes sense and often this is down to admitting a mistake in entering that specific location in the first place.

But for retailers who have been successfully trading in a location, only to see their trading performance decline, there is more often than not a disease eating away at the heart of the business for which certain stores or leases become a convenient scapegoat.

The Australian retail economy is blessed with having seen continual top line sales growth since the year 2000. We exist in a low inflation, low interest and low wage growth era not seen since World War II. Sure we have online as a game changer – but it still represents less than 10 per cent of sales dollars and continues, at present, to bump against a glass ceiling in regard to market share.

The biggest shifts in the retail marketplace have been with consumers – notably in the areas of product and price transparency; plus the need for stimulation and their falling levels of patience.

The vast majority of domestic retailers have failed to adjust and as a result have been reduced to pricing actions that have eroded margins to unsustainable levels – representing fear triggered survival instincts, which have numbed clear, strategic thinking.

Beyond the mediocre

Consumers can see unoriginal, substandard products and services a mile away. With a globally connected marketplace that allows them to shop any brand in the world, they can see what is available and their ‘new normal’ is a comparison to everything that they can search.

Then they price match and perform their own personal value for money evaluation. ‘Me too’ or commodity product equals low value cheap pricing. The only solution is better product development to create upward pressure on pricing and margins through consumer-recognised value.

The number of research studies that have emerged over the last two decades showing indisputable proof that attention spans are diminishing and that customers seek greater levels of stimulation every hour of every day, means slow moving retailers have become boring and unattractive. Shop fits are a prime example. Once they could last up to ten years and often be nothing more than maintenance. Today they last between three and five years and must radically improve the customer experience or they fail to achieve the golden 20 per cent sustainable uplift target.

And don’t even think about wasting a customer’s time today. They’ll not only walk out, they’ll call you out on social media to every person they have ever met. Out of stocks are leading examples of pissing off customers by wasting their time.

So before you shut stores, take a long hard look at your business and work out what is really going on. Because in my experience if you really know how to fix your business, there aren’t too many landlords that won’t support you back to good health if you can argue your case with logic, passion and commitment.

Peter James Ryan is chief executive navigator at Red Communication Australia, and has 25 years of marketing and business experience.

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