Are store closures negatively impacting retail’s online sales?

Numerous retailers have been announcing high levels of store closures to help them satisfy short-term demands to reduce costs. But such moves could signal problems in the future as it experts believe it will likely reduce their online revenues and disrupt their multichannel ecosystems.

Nick Thomas, chief digital officer of Holland & Barrett, says: “If a store is losing money then there could be multiple reasons for it. The quick fix is to close lots of loss-making stores but in the long term it’s damaging.”  

Holland & Barrett has around 700 stores in the UK and he says the company is investigating the future of these outlets but he is very clear that the only reason to close any units is if there is any overlap with other stores in the catchment area.

“In all the businesses I’ve looked at, the customer who shops in more than one channel is the most valuable. Online customers are promiscuous and disloyal and customers who only shop in-store are also tough [to keep]. But when they shop across both channels then they are very loyal,” he says.

Will sales transfer online?

Thomas believes it is a mistake to think that when a store closes there will be a transfer of all of its sales to the retailer’s online store. When clothing giant Next produced its impressive ‘Fifteen-Year Stress Test’ report on the future of its store portfolio it did not factor in any sales moving online from the closure of its outlets.

Next was much more interested in the effect of online revenues being lost because of the inability of customers to use those shuttered stores for servicing the growing demand for click & collect orders and the outlets no longer serving as convenient returns points for unwanted online orders.

Next management has placed such importance on its stores as supports for online-generated sales that it has calculated it is worth keeping open as many as 120 stores that it forecasts will become loss-making over the next 15 years as a result of sales shifting from stores to online. It calculates its store portfolio will suffer a continuing annual like-for-like decline in sales of 10%.  

Wayne Snyder, VP of retail industry strategy for EMEA at Blue Yonder, says the constant stream of store closures being announced by a raft of retailers is very worrying because for the likes of Marks & Spencer – which has announced at least 110 stores will close – as much as half of its online orders are click & collect.

He also points to the massive number of people who look in-store before buying online: “Why buy from them if they have no store? You might as well go with a pure-play. There is also the loss of that personal relationship that is created in-store.”

Another factor, according to Snyder, is that halving the number of stores does not do the same for a retailer’s cost base. It is also the case that very few online retailers have managed to create a profitable business and the ideal model has been proven over recent years to be firmly with multichannel.

Retail collaboration

However, it is clear that many traditional retailers are finding it tough to justify their existing bulky store portfolios and so it might be time for some collaboration between retailers in tandem with the closures. “Collaborations involving another retailer taking half a store and sharing the back-end costs will be seen but retailers will only do it reluctantly,” suggests Snyder.

“People are looking at store closures far too simplistically. What does the customer want? They don’t want store closures. If you close stores then that’s not putting the customer first and in the long term there will be ramifications,” he argues.

A virtual P&L

Thomas agrees and puts the problem down to the fact that the traditional store P&L does not take into account the full “monetisation of customers” across channels. His role at Holland & Barrett involves addressing this failing and he is developing relevant KPIs for today’s marketplace: “The metrics are not currently sophisticated enough so I’m bringing a virtual P&L into the system…It’s a very modern challenge.”

Such activities suggest to Thomas that the debate within the retail industry has shifted from being around digital to one that is very much around property strategies. And rocking the ecosystem of physical stores and online could well deliver serious damage to planet retail over the long term.