While Reducing Square Footage Saves in Short Run, Sales in Both Online and Catalog Channels Benefit from Retail Store Presence
With retailers just recently beginning to recover from the effects of the enduring global recession, pressure is mounting for managers to eliminate inefficiencies in their channel portfolios, and, in an increasingly digital world, many are taking the axe to their retail store operations to fund their digital footprints.
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For example, Gap is closing 200 U.S. stores, while Lowe's is closing 20 stores and scaling back its plans for store expansion.
But the strategy shift prompted the American Marketing Association to ask the question: Does opening retail stores help or hurt a retailer's online sales? The answer they found was surprising.
"In the long run, sales in both the online and catalog channels benefit from the presence of retail stores. The physical presence of a store attracts new customers to the direct channels and encourages existing customers to buy more," concluded Dr. Jill Avery, assistant professor marketing at the Simmons School of Management and lead author of the analysis.
Ryan McCullough, a real estate economist for CoStar Group also recently analyzed the effect of e-commerce across a variety of retail segments. McCullough compared 2010 retail sales growth by segment against the change in occupied square footage of a sampling of retailers in fiscal year 2011.
In a period of record-high profitability, such as is the case today, one might expect retailers to expand their footprints at the same rate or faster than their sales growth if their physical stores are indeed productive.
McCullough concluded that auto parts, warehouse club, and sporting goods retailers are still wringing solid productivity out of their storefronts.
The electronics/appliances segment also appears to have productive at least through the end of 2011. This year, though, Best Buy, which had been expanding through the end of FY 2011, has since announced plans to shutter about 50 of its stores this year. Other retailers in this category, like RadioShack, have been reducing their physical presences for the past several years, so absorption is likely to be weak from this group going forward.
On the cannibalized end, there is a conspicuous gap between total sales in clothing/accessories and the segment's corresponding physical demand growth. With e-commerce in this segment growing at a much faster rate than overall e-commerce, it is easy to speculate on what has lured those dollars away, McCullough said.
"Don't make the mistake of thinking that the slowdown in leasing from clothing retailers is a temporary phenomenon," McCullough warned. "Conservative growth is likely to be the new normal for retailers in this segment no matter how profitable they become."
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