Source: childrensplace.com
Should Children’s Place’s future be digital?
Children’s Place last week announced plans to close 300 stores, about a third of its store base, over the next two years as the children’s apparel chain saw shoppers migrate to more online shopping.
“Due to the pandemic, consumers all across America have been forced to shop online, many for the first time, with positive results,” said Jane Elfers, president and CEO, on its first-quarter conference call. “We anticipate that the lingering impact of COVID-19 will continue to accelerate the shift to digital, putting enormous pressure on the already-stressed brick and mortar channel, resulting in accelerated store closures.”
Children’s Place’s launch of its digital transformation three years ago helped its online sales reach 31 percent of total revenue for 2019, one of the highest digital penetrations in the apparel space.
Online growth has taken another leap during the pandemic. In the second quarter through the first week of June, Children’s Place’s online sales are up 300 percent, driving consolidated sales up to positive low double-digits despite 95 percent of stores remaining closed.
The retailer’s online growth is being driven by the migration of store-only shoppers to omnichannel shopping at four times the pre-pandemic rate. Omnichannel customers spend nearly three times that of retail-only customers.
At the same time, the chain’s new online customers increased 250 percent since locations were closed in March, “which we believe will allow us to emerge from this crisis with greater online share, due to increased customer awareness of our e-commerce channel,” said Ms. Elfers.
Children’s Place expects to close approximately 200 locations in 2020 and about 100 in 2021, resulting in approximately 625 locations at year-end 2021. As the quarter ended, the chain had 920 locations, including 62 percent in malls and 38 percent in non-malls. By 2021, its mall-based stores are expected to represent less than 25 percent of total revenue.
The closure of stores will limit ship-from-store capacity, now available from over 85 percent of locations. Mike Scarpa, CFO and COO, said ship-from-store “is not the most economical situation for us,” estimating that stores only offer 40 percent productivity rates versus robotics-enabled DCs. Units per transaction are also increasing and stores face hurdles completing full orders.
Discussion Questions
DISCUSSION QUESTIONS: Will Children’s Place’s acceleration of store closings help or hurt its performance? How should apparel chains restructure to deal with the accelerating shift to online as a percentage of sales?
Poll
BrainTrust
Steve Dennis
President, Sageberry Consulting/Senior Forbes Contributor
Jason Goldberg
Chief Commerce Strategy Officer, Publicis
I see this move to close stores and lean more into e-commerce as critical to success in the future. It sounds like they have a substantial fulfillment network which is highly automated in the DC, which is great if it’s the case! From a store perspective, taking up fewer square feet for the inventory in the stores (if not doing SFS) and creating more experiences, paired with a fast/automated fulfillment network may be the best approach for them. One thing they can do is take a long and hard look at which stores should be vs. shouldn’t be fulfilling. There’s still benefit to ship-from and ship-to-store flows, but often companies like Children’s Place over-activate stores, just because they think it’s the right thing to do. This reassessment may open up more speed and maintain cost for when it’s not always best to fulfill from a DC that is perhaps not as close.
Performance is relative right now – stores are struggling to get shoppers in, so ditching expensive real estate is a performance enhancement when it comes to the bottom line. Will overall sales appear down or flat this year? Most likely. Are they setting themselves up for a more profitable and stable future? There are still so many unknowns, but Children’s Place’s path is a good path for their business.
The online trend has been visible for over a decade, but Children’s Place is the one that executed well.
They also seem to be able to successfully balance the trade offs of centralized DC vs. ship-from-store.
Closing physical stores and going all-in on e-commerce is the best option for Children’s Place. This was true before COVID-19, and is doubly so now. With a lower cost-to-serve and larger basket, the biggest challenge will be in making the transition quickly.
Like a lot of retailers, Children’s Place is right to review store portfolios and cut back on less successful locations. Arguably this is something that needed to be done anyway, but the acceleration of online has made the consolidation a priority. That said, a physical presence is still necessary in some form, especially when other retailers like Target are making great strides (and are taking market share) in kids’ apparel because of their convenience and great ranges and brands.
When every retailer goes online by default, they will have a worse problem than being in a mall – sameness. Without the physical imprint of shopping in stores, and with most of these online shops selling brands similar or the same, I predict they will be begging for customers with unprofitable promotions and free shipping both ways.
We have been saying that the country was overstored. The forced shift to increased e-commerce has now accelerated the reevaluation of stores’ performance in light of the pandemic. The inevitable result is that stores that were even marginal have to be closed. The size of the pie is the same, the slices will now be about 50 percent retail stores and 50 percent e-commerce.
Of course Children’s Place’s future should be digital. Per Forrester data 52 percent of all purchase decisions were already digitally influenced prior to COVID-19 (higher in apparel), and now that COVID-19 has propelled us five years into the future, over 70 percent of all purchase decisions are digitally influenced. So digital is already the front door to the Children’s Place experience. To think otherwise is to worship at the alter of the sacred cow.
But that doesn’t mean that brick-and-mortar stores aren’t an important part of Children’s Place as well. Closing 300 stores (less than one-third of your fleet) over a couple year period is not “exiting” brick and mortar. It’s rationalizing your brick-and-mortar presence for an evolving reality.
Wayne Huizenga (of Blockbuster/Waste Management/Auto Nation) used to say that a great retailer should always be opening new stores and closing old ones in response to changing customer needs. “Until the US population is static, your store footprint shouldn’t be static either.” Closing 300 stores is probably an acknowledgement that you weren’t manicuring your fleet as quickly as you should have been, and that COVID-19 has accelerated things, but it’s far from a retreat.
Anyone who has met Jane Elfers will know, she isn’t the overly sentimental type. She’s a lot more focused on her customers’ needs than she is keeping 900 stores open simply because “that’s what we’ve always done.” The extra pressure from COVID-19 means we’re going to see many other retailers make similar decisions.
Without internal data it’s impossible to provide clear guidance, but a few things should be kept in mind.
First, closing stores does nothing to directly make a brand more relevant, in fact it makes it less so.
Second, in the vast majority of cases, the profitability of low order value apparel online ranges between awful and breakeven. When it comes to retail categories that are prone to high returns and where an in-person experience is critical to customer acquisition and conversion the notion of being pure-play is almost certainly untenable. Which is why virtually none exist.
Third, digital drives brick-and-mortar, and vice versa. For retailers that are struggling the key is to make the overall brand experience more intensely customer-relevant and remarkable AND to get the balance of physical and online asset deployment right. It’s about growing profitable share of customer and profitable share of trade area, regardless of where the customer chooses to ultimately transact.
The limited data offered points to a scenario where digital is influencing most Children’s Place purchases. If this is true, then it is likely they are “over-stored” at the moment, especially considering how COVID-19 has accelerated most consumers into a digital, online-first future, today. That said, most retailers experience a digital uplift from having stores in a given region because the stores anchor the brand experience with consumers. Without that physical footprint, it’s more difficult to engage a customer online in a differentiated way. If the 300 stores in question are primarily at C or D malls, or simply are underperforming stores at B malls, then Children’s Place is wise to close them and focus on the more profitable locations. The only mistake here would be to fail to invest in their digital experience and to further differentiate themselves in the eyes of their customers. Hopefully, this move maintains the appropriate balance between physical and digital.
Yes, CP’s future is digital. They should be emphasizing this migration as rapidly as possible, since they are competing with not just children’s stores in this space, but any retailer. They compete for retail dollars, in a digital world. This needs to be their focus and future mantra.