19 May 2024, 08:10
By Furniture News May 24, 2018

How many stores is too many?

How many stores is too many? It’s a dilemma that’s all too clear to the nationals, as closures hit a record high in 2017, and continue to dominate the headlines today, writes Furniture News' Paul Farley.

According to the Local Data Company, the fashion sector has been the hardest hit. In March, New Look announced the closure of 60 of its 593 branches, while in April Mothercare proposed a CVA that could see it pull down the shutters on a third of its estate. 

Closer to home is the uncertainty surrounding the future of Homebase, which has been flagged up as another likely candidate for significant restructuring and refinancing thanks to spiralling losses under Wesfarmers.

Then there’s Carpetright, proposing a CVA that will see the closure of 81 active stores later this year. CEO Wilf Walsh cites “the burden of a legacy UK property estate consisting of too many poorly-located stores on unsustainable rents” as his problem, and he’s not alone in identifying a level of retail coverage that’s wide of the mark.

And add House of Fraser to the mix, and it starts to look like the bandwagon's getting crowded.

While countless factors are to blame (take your pick), it’s arguable that if a business model is able to more quickly adapt to changing consumer demand, such extreme measures might not be necessary. A CVA can provide a business with some breathing space – but will it be enough to effectively redefine how it operates?

And let’s not forget that it’s not all doom and gloom. Amid these retreats, it’s fascinating to watch other nationals expand towards their retail estate ‘sweet spot’ by targeting new openings. 

Dreams’ CEO Mike Logue has revealed plans to increase his store estate by 30 (to 220) over the next two-and-a-half years (thanks to the likes of Toys R Us and Maplin, there’s plenty of empty shells available), while both well-loved independents and former ecommerce pureplays are spreading their wings.

Achieving the right balance of physical and online channels is at the heart of any successful retail strategy, whatever the scale of the business – and it’s not necessarily skewed towards ecommerce.

In its latest financials, Next posed an interesting (and purely rhetorical) scenario – what if its stores suffered more than 10 consecutive years of -10% LFL sales? In extreme circumstances, would its store portfolio prove an asset or a liability?

Next proposed that while such a scenario would severely undermine the value of its physical retail business, its store base, while smaller, would remain viable – without detracting from its online activity. 

As today’s harrassed national retailers are painfully aware, brick-and-mortar selling means large fixed overheads which are slow to adapt to shrinking sales – yet online business incurs variable (principally logistical) costs which increase alongside sales. Next found that there’s no magic bullet with which to achieve this balance, but that by making many small improvements – each in turn creating a better shopping experience, and increasing sales – it can envision a healthy multichannel future.

As those aforementioned overstretched nationals might attest, achieving the right retail balance is more complex than it’s ever been – but if you don’t know your business, your customer and your options inside out, you may be facing a future that’s just as uncertain.

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