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Why Fewer Physical Stores Makes Sense for Retailers Amid a Shift to Digital: George Minakakis

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Gone are the days when having a hundred or a thousand stores was the only way to meet consumer needs and demand for your products. About five years ago, I said that retailers in Canada didn’t need more than 30-35 stores across the country. I don’t believe a brand operating in North America needs more than three hundred and fifty locations. E-commerce made that a straightforward decision for me. A plethora of stores used to be a symbol of power and influence in the retail world. With the exception of a few sectors, that’s not quite the case anymore.

Take Grocery as an example; the pandemic opened the door to home delivery. In a decade, we may not need that many physical locations. I see grocery delivery growing and becoming very competitive.

I wonder if they are ready for consumers who shop in the store and want their groceries delivered? It’s going to be an added service, especially for those who don’t drive. Why? Consumers want more convenience, and they have immersed themselves in a digital world to save their personal time for activities that give them pleasure.

Marketing has also changed; once radio, tv, print, and emails dominated and drove traffic to stores. That, too, is behind us. However, the cost of marketing and acquiring new customers has not come down. Of course, the digital noise is deafening. This digital frontier is elusive for many, especially when a single store operator with a mobile phone and a homemade video can go viral. That has placed pressure on marketing teams everywhere to crack the code and deliver that coveted ROI. It used to be just another marketing channel; not anymore; everything is about a brand channel. The strategies must provide a return, or store closures and brand failures will only accelerate.

Going digital has been an expensive and complicated process over the last few years. Many retailers who claimed that they were well on their way with their digital transformations failed before they finished. However, as technology has evolved, it has become a lot easier to be visible and engaging on all social channels. Of course, that didn’t always mean sales and profit growth. As long as you engage and build awareness, a following and conversion will happen. At least that’s the goal. Digital experts would tell you that if your strategies failed to deliver results it is because you stopped too early or did not put enough resources behind them. In translation, management didn’t put enough money into the meter. Nevertheless, this is part of keeping your distribution channel alive today.

Even with this transition, many are still in shock when they hear about store closures. A battle-hardened retailer will tell you that it’s just another day in retail. Store closures are usually a part of rationalizing how much presence you need in a marketplace. Not to dismiss the fact that retailers even today get it wrong when making real estate decisions. The facts are this, too many stores mean financial vulnerability, especially if some of your locations have a four-wall EBITDA that’s zero.

Store closures today don’t need much analysis. Consumers have been sending loud messages directly through declining store revenue. Which is, by the way, a lag indicator that something is wrong. Successful strategic operators use data and research to stay ahead of consumers and the marketplace — closing stores and spending more on their digital marketing strategies. Having a thousand stores no longer makes you a leader in the retail universe. The present and future of retail are about reaching and communicating with consumers — telling your brand story in a way that fills functional and essential needs and touches the publics’ social and aspirational values. If you are going to do anything in the coming years double down on aspirational messages.

In retail, you need to have some form of physical presence. For example, take Disney, they announced back in March of this year that they would be closing stores. It’s not a surprise; Disney is even rethinking how they release and distribute movies. Consumers are telling us things have changed. Disney’s physical presence and business are its parks; stores are only a brand extension and not all of Disney’s profit centres. The same thing is happening with e-commerce only players. The store is an extension of their brand; it’s not a plan to abandon e-commerce. Disney acknowledges that you can still sell products online.

George Minakakis
George Minakakis

At the end of the day, rationalizing a brand’s store presence doesn’t mean there will be millions of square feet of empty commercial real estate. We may face a short period that looks that way, but things will recover. There will be plenty of new retailers that take up that space; they will have fewer stores and a much more robust digital footprint than their predecessors. That’s just the continuous evolution of retailing. Resilience calls for visionary leadership and courage to move in the right direction faster. It’s not complicated, and you don’t need to break retailing down into convoluted nomenclatures to impress anyone, it’s not necessary nor valuable. Success in retail is about creating a brand with the right business model coupled with the right consumer model in all channels, and if you need to hear it, that means physical and digital.

George Minakakis is the CEO of Inception Retail Group inc. Author of The New Bricks & Mortar: Future-Proofing Retail. To be released Summer 2021.

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