Though I’ve said it before, it is worth repeating - stores matter!
That’s the emphatic position of Fran Horowitz, CEO of US fashion retailer Abercrombie & Fitch (A&F), but it’s a lesson that’s being learned across the retail spectrum. We’ve noted this trend before - a growing awareness that competing in an omni-channel market doesn’t mean a knee-jerk panic to shutter as much real estate as possible and plunge online in a bid to ‘be’ Amazon.
Certainly there have been big issues among some of the so-called legacy retailers when it comes to their store strategies. The most common problem has been ageing infrastructure and the tired nature of the physical environment. This is addressable, but it takes time and money and some brands are fast running out of both.
The other question that all retailers need to ask themselves is what they see as the role of the store in today’s economy. Some, like Walmart and Target, have successfully transitioned stores into distribution hubs for e-commerce shipments. That’s something that suits the nature of the inventory those firms specialize in, particularly around groceries, but not a trend we’ve seen quite as much of in the fashion sector.
But that’s starting to change as leading brands take time to consider what they - and more importantly what their customers - want from their stores. A&F is a good case in point. The firm did 70 store upgrades last year and plans to tackle a further 90 in 2019. And when it does so, size is a major consideration. Smaller is better is the underlying theme, with bigger flagship stores being shuttered or reduced in size.
It’s a deliberate omni-channel play, says Horowitz. While digital now accounts for 30% of sales, up from 27% in 2018, the real world experience remains a primary focus:
In this increasingly omni-channel world, the customer continues to value the ability to shop across channels and we remain focused on providing the most brand appropriate experiences whenever, wherever, and however they choose to engage with us. Global store optimization is a key component of our ongoing operating margin expansion story and critical to achieving our previously stated fiscal 2020 goal. We ended fiscal 2018 with 861 stores across brands, of which 90 are considered flagship. We have and continue to be focused on reducing our reliance on large format stores and transitioning to smaller, more omnichannel spaces in the best locations that cater to both local and tourist customers.
While I’m extremely proud of the over $1 billion in digital sales that we achieved in fiscal 2018, we are a modern omni-channel retailer. In this age, we’re seeing like every headline references a retail apocalypse, we continue to invest in our global store base. We have solid partnerships with our landlords and that's because we are one of the few retailers that remain committed to opening and remodelling stores. That has not changed. We remain on track to provide approximately 85 new experiences for our customer this year, and are committed to finding additional opportunities that are aligned with our strategy.
Over at Nordstrom, there’s a similar effort to upgrade the physical presence - or as President Erik Nordstrom calls it, to execute model changes in the stores:
We've been on this journey for a while. Clearly, our model needs to change. Our business model of which was born in bricks and mortar stores and define what the role of stores are. We think we have real good clarity on that. Our stores still have that role of having great sales people who are taking care of one customer at a time and making some genuine human connection. That's in our DNA, that continues to be important.
But increasingly stores play a fulfillment role. They’re locations where customers can pick up online orders and they’re locations that we fulfill online orders from. So, we have moved our labor model in our stores to reflect what customers want and need. There are efficiency opportunities in there, but I wouldn't say that it's been a blunt force of getting our expense cuts. I would say that that's been done with,’Oh boy, how is the customer's needs changing? What are they looking for? How can we leverage the physical assets we have in stores and the people in our stores and the inventory in our stores to better serve them on their terms?’.
Nordstrom cites the firm’s local market strategy as one example of this new model approach:
Let me be clear that is our model for the future. We started in LA last year and it really started with engagement. How do we engage with customers by leveraging both our digital and physical assets? That included experimenting with new physical assets in the Nordstrom local service hubs, that engagement part across services and across channels. We know we've got a lot of data on that and we know the more we engage with customers across channels and services the more they spend. That's gone really, really well.
Here is a massive piece of engagement that customers love, that we think we can do in a fairly unique way and really do it on customers terms that drives higher engagement, drives bigger spend. Ultimately our local market strategy success metric is gaining market share in these markets and we have seen that in Los Angeles. We're in the midst right now of expanding our local market services from those core four stores to all 16 full-line stores in Los Angeles.
And there's more to come:
We are on pace to bring our learnings to New York…We have two Nordstrom Local service hubs planned on the island. We're well positioned to execute that in New York. And then, our plan is next year to take that to our biggest markets across our portfolio That is our model. It leads with service engagement across channels and services and it leads with leveraging inventory to get customers a greater selection to them faster and add better economics for us. And we think that's the future of our full-price business.
Meanwhlie at still-troubled GAP, CEO Art Peck, who was last year boasting of the retailer being a a Silicon Valley “digital innovator”, is now vamping up its store roots, particularly when it comes to the Old Navy brand, the only part of the GAP empire to have shone in recent years. He argues:
One of the most important foundational cornerstones of Old Navy as a business is an exceptional four-wall model. I'm a big believer that we are still a bricks-and-mortar retailer with an incredibly successful fast growing complementary online business, but it all starts inside the four walls. And nothing, and I would just underline, nothing has done anything other than give us confidence about the growth opportunity, as we've continued to roll out stores in smaller markets and in-fill opportunities.
You don’t have to splash out a lot to make a difference, he adds:
Even very low scope remodels, which are largely a can of paint and a paintbrush, have yielded really good returns in terms of the lift in the business and the return on investment that we're making. So, and this is pretty foundational, obviously to the growth thesis in front of the business. I would just add to that and say we are, where [the customer] wants us to be. If she is moving and shopping more on her phone, we're definitely there with her. We're seeing pretty encouraging metrics coming out of that mobile customer, BOPIS [Buy Online, Pick-up In Store] which we lit up in Old Navy first. We’re continuing to see the penetration go up there….It’s getting a customer into our store, who is highly qualified, it's eliminating the below the line expense, gives us an opportunity to sell the customer immediate gratification.
Love the store! The lesson is being learned. Omni-channel transformation means spending on digital, yes, but it’s as important to spend in-store as well. Having a digital strategy means more than a slick website and a mobile app.