Opinions expressed on this blog reflect the writer’s views and not the position of the Capgemini Group

Big boxes, big problems; three ways to stem the decline of big-box retail destinations

Customer shopping behaviours, across all channels, are driving a shift in the retail landscape. We are at an interesting crossroads where online pure players are seeking a physical presence (e.g. Amazon, while traditional bricks and mortar retailers ponder the best use of their space as customers shift more to digital channels. 

At a macro level, the number of stores on our high streets reduced in 2014; PwC estimates there were 987 net high street closures, which is indicative of the need to sweat physical assets to stay profitable. Aligned to this is a trend for the remaining stores to review their size. For those retailers who raced to win the ‘space race’ and invested in large format stores, such as Tesco, Sainsbury’s and B&Q, have all either ‘rightsized’ stores, or suggested the need to.

Sales and footfall have been flowing online and into convenience stores. In food, for example, IGD says online and convenience store sales, over the next five years, will rise 9% and 11% respectively, with hypermarkets declining by 3%. Retailers talk of falling sales densities in larger stores, across categories, with limited solutions to combat it.

Introducing range is the traditional response – but where ‘new’ could once wow customers, this is now harder. A large supermarket, for instance, may have 45,000 SKUs; Amazon has that on dishwashers alone. Type in ‘headphones’ on Amazon and you can get 1.5 million results; there are 30,000 results for a mop. For sure, plenty of duplication, but the perception of choice is forever altered.

So what to do with the albatrosses of retail?

 Is it just a case of shutting them in phases, as their densities cross a threshold of doom? Well, not necessarily. The formula of a compelling offer that creates a retail destination and a buzz still resonates with customers, it’s just that traditional levers, such as additional range that used to drive footfall don’t have the same impact. To draw the crowds and maintain densities, new approaches are needed.

Selling fresh air

Firstly, there is the question of how much excess space there is in a store. This requires a clear commercial strategy that takes into account customer trends, and the online participation of sales in each category (both today and in future). Once understood, ranges can be gradually pruned and densities maintained (backed up with a well orchestrated merchandising calendar), while leaving the customer with ranges that still feel relevant and a space that doesn’t feel ‘baggy’.

There can be fringe benefits here in optimising and simplifying in-store replenishment. Trimming range in this way can be challenging to execute, which sees retailers often reverting to a model of buying to fill space, rather than react and fill to changing trends.

Phone a friend

So, we’ve got the space – what do we do with it? Firstly, well selected partners can help create that destination ‘feel’ for customers that makes a trip to the store worthwhile. Working with a partner that mirrors the customer profile, their visit frequency, and (to an extent) their demographic, will help achieve this, as will working with a partner that complements the retailer offer.

A DIY retailer, for instance, that puts a gym in store may wrongfoot the customer and not benefit retailer, customer or partner; however, a supermarket that puts in a crèche may be a great fit. The Sainsbury’s’ and Argos tie-up looks a good fit in this sense; complimentary ranges which fit shopper frequency. All rules have exceptions. Fashion and food, for example, often work well as that taps in to the leisure aspect of fashion shopping.

Use service, not range, to extend your offer

Alternatively, retailers can look at their new-found space as a space to extend their service offerings. Using space to open up new services (for example, tailoring and fitting services in apparel)  can help drive loyalty. The key to this would be ensuring the service creates a sense of ‘newness’ that gives the customer an incentive to make the trip.

Use the bricks to support the clicks

Space could be used to support the multichannel fulfilment model, allowing more efficient picking from store. For in-store fulfilment of online orders, it makes sense for store colleagues to pick items from the warehouse, and yet backrooms tend to be set up purely for in-store replenishment. Properly equipped backrooms for in-store fulfilment, space for racking, pallet, hanging and temperature solutions, would maintain on-shelf availability and satisfy the digital customer as well as the store. This also has potential as peak support for click & collect.

Creating permanent warehouse space to manage click & collect peak volumes (which are a perennial challenge) would be a poor use of capital, but when blended with an in-store fulfilment backroom, the ROI looks better, as does the future multichannel capacity. The step to operating as localised Distribution Centres to service local small stores (similar to the Wal-Mart / Wal-Mart Express relationship) is not a huge step on from here.

Use the space wisely

With a deeper understanding of in-store density drivers/ thresholds, a strong commercial strategy which centres on customers in-store needs and a good idea of what would ‘fit’ well to reintroduce footfall to the big-box, reports of their death may be greatly exaggerated. It’s time to think differently about ‘space’ and the destination of big-box retail.

About the author

Nick Hoenig
Nick Hoenig
Nick is a Senior Consultant with experience in retail, change management and strategy and business planning. He has deep industry experience managing change programmes, building and executing strategies for large business divisions and leading big operational teams.

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