Lessons to Learn From Retail Closures - Michael McVinney
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Lessons to Learn From Retail Closures

This post originally appeared on SimonCRE Insights Blog and is republished with permission. Find out how to syndicate your content with theBrokerList.

The threat of the “Retail Apocalypse” has been oversaturating the news headlines for the past few years, but nevertheless when news breaks about J.C. Penney, Toys “R” Us, Charlotte Russe, Payless ShoeSource Inc., and Charming Charlie store closures and bankruptcies — it’s understandable to grow more wary of the future of retail.   

However, if handled correctly, the retail industry, much like the journalism industry, is not dying due to the internet — but shifting

Here are some lessons learned from recent retail case studies as well as insight into how the industrial sector has been conversely affected by e-commerce.

 

Lesson: You can’t just cut costs.

Companies whose plan of action if things go south would be to only cut costs will not succeed in these changing times. The focus should instead be on how in-person experiences must become more engaging than online shopping is convenient. 

Case Study: Dollar General may be a discount retailer but it’s sparing no expense to keep up with the demands of its customer base. To stay competitive with discount grocery chains such as Walmart and Aldi, Dollar General will supply more fresh produce and refrigerated foods as well as offer self-checkout and pick up in store options. 

Lesson: Expanding the store footprint is not always the answer. 

Many times expanding a store’s offerings and absorbing larger spaces is not the route to go. A better course of action may be to embody the practice of the omnichannel model, or having a store and its digital operations essentially operate as one sales channel.

Case Study: Though most department stores are hurting, Kohl’s has been one of the most aggressive in slimming down its square footage and even leases out the extra space left over to outside partners. In March 2019, Kohl’s announced it will lease space in 10 of its stores to Planet Fitness. It also capitalizes on the opportunity of hosting an Amazon Dropoff at all of its 1,150-plus locations to improve convenience and foot traffic.  

Lesson: Do be aware of the logistics change. 

The aforementioned sector of industrial is a hot one right now with the average size distribution center space for online retailers being 1.2 million square feet per million dollars of sales. This is about three times the space needed for that of brick-and-mortar stores. 

In the past, it was common for warehouses to be situated in more rural areas where land, taxes, etc. were lower; whereas the trend now is for the merchants to house their goods closer to dense populations so the shipping time is reduced. 

Case Study: Walmart and Target are known for having recent warehouse space popping up close to households to stay competitive with the shorter shipping times Amazon has set the bar high for. 

Lesson: Online-only stores may still need brick & mortar.

The coined phrase, “clicks-to-bricks” describes the reverse of what the conversation has been, and there is proof that online-only retailers are still looking to open physical locations. 

Why are these digital natives joining the real estate game? For starters, there’s more leverage to have flexibility in signing a lease now due to the high mall vacancies. There’s also evidence that it can be 10 times more expensive to acquire a new customer online alone versus in-person.  

Case Study: After testing temporary spots in shopping malls and street retail, online mattress retailer, Casper plans to open 200 permanent locations across the country by 2021. The company dipped its toe in the brick-and-mortar arena in 2018 by first opening a “Sleep Shop” in New York that offered 45-minute naps for $25.


To turn some negative pitfalls in the retail industry into learning opportunities, these case study examples provide some insight into creative and very necessary avenues to embrace the change. 

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