Five ways to successfully reorganise retail estate portfolios
With the costs of running retail outlets rising, rapid growth of online competition and the shock impact of the global pandemic, many retailers are having to rethink their real estate portfolios.
Stores have been deprived of their normal footfall for an unprecedented period. With social distancing in place and the looming possibility of a second wave, retailers are certainly not over the ‘worst of it,’ yet.
We are already starting to see the fallout of these incredibly challenging circumstances, with a growing list of established retailers falling into administration including Debenhams, TM Lewin and Harveys in the UK, and JC Penny, Gymboree and J Crew in the US. With buy-outs, restructures and rationalisations set to continue, market players are facing very tough decisions.
For retailers that need to kick start a closures programme, it is imperative that this is managed with utmost care and discretion.
As much protection as possible needs to be given to the customer experience, staff, brand and reputation.
A process that is notoriously painful can be made to run more smoothly by considering the following five areas:
1. Full visibility from the outset
The tasks required on individual store closures may appear relatively straightforward, but across a portfolio there are many moving parts and different agents involved, as well as strategic and financial opportunities to be gained or missed.
Start by conducting a full portfolio assessment to determine facility sizing meets future demand and to understand the wider cost implications of your decisions.
Managing multiple projects with a portfolio approach gives you:
- The right data, unified and verified, to make optimal portfolio decisions
- A platform for economies of scale and agility in your supply chain
- The structure and system to act efficiently and strategically
2. Good stakeholder management
Whether closing a single store or multiple, it is imperative to engage with the full range of stakeholders as early as possible.
In particular, by working with your landlord(s) from the outset, you may unlock estate-wide solutions in order to save locations potentially earmarked for closure.
Ensure that you:
- Know your audience: identifying who they are, what their interest is, where they are, when and how you need to communicate with them will help map the path
- Use concise, relevant and appropriate language
3. Detailed exit strategy
Investing in a detailed and developed exit strategy is advantageous when closing a retail store as it will highlight your requirements and liabilities. Having good knowledge of the terms of your lease is crucial when developing the strategy.
Whether you are looking to trigger an early termination clause or your lease is due to expire, understanding your liabilities in relation to dilapidations can come at a cost that you may have not originally budgeted for.
Some key thoughts to limit your liabilities:
- Start your planning with stakeholders early
- Use portfolio/programme approaches to provide data analytics to support budgetary planning
- Understand what your exposure is in regards to dilapidations
- Decide if stock and assets should be sold off, relocated or disposed of
- Notify your suppliers and service providers of exit dates, including supplying meter readings
- Complete all your obligations prior to the agreed date so as not to incur additional costs
4. Data-driven customer strategy
Clear messaging will reduce potential customer dissatisfaction and disenfranchisement with you as a brand. It is important to consider whether local network enhancement investments are needed to cover footfall growth through redirection to retained facilities as the network is downsized.
An immediate priority should be to de-brand closed assets promptly to avoid negative imagery.
As you formulate your longer-term plan, data should drive your decisions and help you:
- Map customers to places; identify migration patterns to define modelling/investment planning for the future
- Understand the potential that may be realised in alternative locations
- Translate customer habits into tangible investment strategies
5. ‘Outside the box’ thinking
Inevitably, some customers may be disappointed about the closure of certain stores, but by working with your communications team and considering the local community, you can highlight the benefits to the market. Consider these questions
- Will you be enabling a better experience for shoppers somewhere else nearby?
- How else will you support your local community?
- Can you partner with local delivery companies, such as Deliveroo or Yodel?
- Rather than taking a whole new store to yourself, have you considered the new genre of ‘co-retailing’ saving on fit-out and rent?
- What impact will it have on your overall carbon footprint?
Planning for revival
Re-sizing your network and market presence is never an easy activity to undertake, both in terms of the human impact and the physical changes to your brand’s visibility.
However, with pro-active behaviours, a detailed plan and specialist support, you can achieve a well-managed portfolio re-alignment that will provide the opportunity to build from a solid base once sunnier conditions start to prevail.
Fact-based, data-driven insight, coupled with a continuous improvement approach will enable your business to adapt and overcome the challenges ahead.