There are store closure programs wherever you look. But online pure players and successful brands continue to invest in retail expansion. So why is this?
To start with, I’m a finance and control guy by origin, certainly not a creative that simply likes brand stores because of their looks. I love retail expansion, because with the right ingredients almost any product category and brand can operate profitable stores – but you’d better know how. Retail expansion strategies have been my most interesting assignments, because the store operations models behind the façade are as complex as they are colourful.
‘Internet Replaces Bricks-&-Mortar Retail’ is Fake News
In the light of store closure programs in the US & Europe a growing number of experts love to predict internet will kill retail. This is about as correct as the statement that dinosaurs were killed off by mankind. The truth is that a growing number of non-competitive brands and multibrand retailers struggle to maintain their over distributed retail network. True is, because of Internet growth, managers and shareholders question more often investments in growing bricks-&-mortar operations. The retail expansion gold rush, where expansion managers were chasing for any available city and High Street is over – and that is a good thing.
But the Internet will not be the sole or dominating future distribution force and it will not stop consumers going downtown for shopping. Just as IMAX cinemas didn’t replace the thrilling live experience of amusement parks, it’s fair to say that the ‘Internet of things’ won’t replace the experience of a shopping trip anytime soon.
8 Reasons why Brand Retail Expansion continues to be a Top Strategic Priority
For all the retail hypercritics, the doomsday sayers, investors, or CFOs that believe retail needs a divest strategy, here is our summary of strategic reasons why you should continue to invest in retail expansion.
1. Bricks-&-Mortar Boosts Consumer KPIs
Whether you run High Street stores for commercial purposes or branding reasons, your consumer research will prove store visits create higher net promoter scores, feed stronger brand loyalty and win a higher share of spending. Regardless of how strong your online communication is, even new millennials are human and nothing replaces an excellent 4D bricks-&-mortar store experience.
2. Retail is the Strategic Enabler of International Retail Expansion
Despite all internationalisation, many of the well-known lifestyle brands continue to have less than 50% of international sales and online stores have their difficulties in reaching international consumers. A retail format and proven track record in own retail or partner retail is still a key lever to growth abroad. ‘Retail expansion readiness’ is a milestone management goal every brand should have, to secure strong international expansion.
3. Urbanisation – The Future is Inner City
Various economic studies forecast for 2030 that 50 to 60% of the population will work or live in the major cities. So – invest now, train your retail teams and succeed in the Champions League of inner city retail (or pray that the farmer’s league of small town retail allows you a decent brand life).
4. 500 Global Brand Retail Locations and a Billion Annual Impulse Opportunities
As long as people leave home for work, travel and pleasure, they will continue to follow bricks-&-mortar impulses for shopping. There is a reason Internet pure players invest in brick & mortar retail expansion – they want to benefit from the billions of annual bricks-&-mortar shoppers.
5. ‘Halo Effect’ or Brand Stores grow Local Markets
Generations of brand retail managers know this story: Brand opens High Street store and the adjacent multibrand retailer cries foul. A year later, the retailer admits to having growing brand sales – the ‘halo effect’ crept in. Consumers trust a brand more when the brand has a familiar High Street face – brand stores grow local markets.
6. Brand Distribution has many Beautiful Formats to reach Consumers where they Eat, Stay and Live
All retail expansion needs to fit local, that’s why leading lifestyle brands operate 10+ different retail formats and grow the organisation’s flexibility to reach consumers wherever they shop. Truly multichannel thinking organisations don’t discuss whether they should retail, but how to retail.
7. Ecommerce needs Downtown Stores
There is no best practice ecom experience without ‘click & collect’ or ‘click and return to store’. A growing share of bricks-&-mortar journeys start online, which is why new millennium shopping needs the downtown stores – there is a reason why Amazon and Zalando have started to invest in retail.
8. For my CFO Friends: 10% Ebit in Retail can be more than 25% Ebit in Wholesale
Well planned retail expansion delivers a significant annual four wall contribution. You can push sales teams to grow (the low invest and high profitable) wholesale, but it won’t change the fact that the wholesale markets are shrinking. 10% EBIT from a dynamically growing own retail channel is strategically far more than 25% EBIT from a shrinking wholesale segment.
“Retail or not?” is so Last Century
If eight key reasons weren’t enough for you to invest in brick & mortar retail expansion, allow me one more remark: Yes, you can distribute a brand without own stores and focus on online (for now). But you without brick & mortar stores you refrain from impulse shopping of billions of High Street consumers. Leaving out high streets is little like leaving out the TV communication channel. Would you advise Procter & Gamble to stop communicating with millions of TV viewers, just because the online advertising market has been growing faster than TV?
There can be no question – brand retail is an essential way to communicate with global consumers and it will be in 2050. Whether flagships, concept stores, factory outlets, High Streets, malls, tourist hotspots, airports, train stations or space shuttles, the future will have many bricks-&-mortar opportunities for retail expansion. As it is, I come to think that escaping own retail in 2017 is cowardly – avoiding risk and responsibility. If your retail currently is not profitable, increase investments to get it right. Invest now, so that you benefit from the market changes, by leading 2020, online & offline.
About the Author
Guido has been working in the brand industry for 20+ years. As founder of Team Retail Excellence, he assisted to grow brand organisations qualitatively and commercially, but retail was his passion. If you are looking for advice or support with retail naysayers you can reach him best by email or find more from him here.