With the UK in a recession, the retail sector is once again suffering and retailers have had to make the tough decision to close stores in an effort to cut costs and improve profits.
H&M has closed 56 stores in the UK since its peak in the months before the Covid-19 pandemic outbreak – that’s one in five stores across the country. The company plans to close 250 stores globally to shift focus to the online branch of the business and also flagship stores such as London’s Regent Street which has been revamped with the typical merchandise as well as clothing rental and a beauty bar.
Gap is probably a more extreme example as the company closed all 81 of its UK stores due to the declining profits, an issue not caused, but accelerated by the pandemic. Gap has decided to operate as an online business in the UK to better position itself for “long-term growth” but unfortunately their digital capabilities were only competitive in the domestic market, the USA, but not globally. The company recorded a drop in sales in the first quarter by 13%, with online sales dropping 17% and in store sales by 10%.
Gap eventually partnered with Next to operate the brand’s digital operations, concessions and click & collect service in the UK for a 51% share of the business. The Gap shop-in-shops at Next locations allows the brand to have physical presence in the UK market.
Why should retailers not take the decision to close stores lightly?
Now, let’s consider why it’s important for retail businesses to have a physical presence. Consumers need to feel the brand experience, they need to engage with the brand and products before purchasing, and physical stores give retailers opportunities to upsell in a way that online stores can never do.
Today’s consumers are multichannel consumers. In a study of 46,000 shoppers, 73% said they used multiple channels, 20% were store-only shoppers, and only 7% were online-only shoppers. So, having an omnichannel approach is the only way to capture modern shoppers.
However, many retailers, like H&M and Gap are investing in online channels while closing brick-and-mortar stores. Though this is an attempt to cut costs, a CACI survey found 50% or more purchases had a touchpoint to a physical store and consumers are more likely to spend more online with brands that have a strong physical presence.
In fact, business loses are at its highest after store closures and online sales are also negatively impacted by as much as 50%. Shoppers who must engage with the brand and product before purchasing will chose a different brand if the store most accessible to them closes; a very small number may shop online only but will be frustrated with delivery times and difficult returns experience.
Although it’s important to have a physical presence, there is sometimes no option during an economic recession but to close stores to cut costs. At this point, it is important to know the role of your stores and therefore the value it’s bringing to your businesses. For example, is it a store with high footfall and high engagement leading to a larger volume of sales online? Don’t close it. Is it a large store where customers only use the click and collect service? Find a smaller unit close to this location and stock a few items to upsell.
Customer analytics is fantastic in helping you determine the role of a store in the customers’ journey and guide you to make the right decision. Just because a store’s conversion is low does not necessarily mean it has no role in the buyer’s journey.
In summary, many retailers are closing brick-and-mortar stores to cut costs and improve profits but this decision should not be taken lightly. Closing a store could negatively impact the businesses overall sales and also sacrifice market share to competitors.