Should showrooms replace closed stores?

Discussion
Photo: RetailWire
Jan 16, 2018
Lee Peterson

Through a special arrangement, what follows is a summary of an article from WayfinD, a quarterly e-magazine filled with insights, trends and predictions from the retail and foodservice experts at WD Partners.

Traditionally, when retailers closed stores, efforts at retention in those neighborhoods — even for customer relationships sometimes spanning generations — were rare.

But the costs of store closings now directly impact online sales. Each store is more than a place of commerce. It acts the same way a billboard does, reminding people of a brand, nudging a consumer who needs a new suit or a pair of socks. And just as new stores have been shown to increase traffic to a retailer’s website, closings have the reverse effect. Handled wisely, it’s possible to capture some (though not all) of a store’s value, effectively transitioning it to the online world.

For instance, what if instead of outright closing Macy’s store in Columbus, OH in spring 2015, a smaller, 5,000-square-foot space had opened in the immediate market area, or even a BOPIS (buy online, pickup in-store) depot?

With a customer base unwilling to make the miles-plus drive to the next closest Macy’s, this depot might have provided the standard basics purchased for years right in the neighborhood. Or if a loyal customer saw an item available online at the next nearest Macy’s department store, the item could have been delivered to this BOPIS outlet within 24 hours.

Dating back to 1970, the former Lazarus location might have successfully converted its thousands-strong shopper base to a new consumption model.

What we internally describe as a “Showroom Store In-Fill Strategy” could make use of effective retention tactics to help brands transition stores sales to online sales before shuttering a store. For example, retailers could offer customers a stack of free shipping coupons for same-day delivery to the BOPIS depot, or survey customers about what key, staple items they would likely purchase at a smaller outlet in the neighborhood.

With this smaller, yet valuable product assortment, a brand can maintain a toehold in a market area and better transition a customer base to online sales.The value of an in-fill strategy, whether showroom or BOPIS outlet, isn’t proven for every retail category and brand. But it is undoubtedly a far better option than utter abandonment.

DISCUSSION QUESTIONS: How would you rate the idea of opening a showroom or BOPIS outlet instead of closing a store in a community? What are the pros and cons of such an approach? Are there other ways to retain the loyal customers as online shoppers who have been left behind by store closings?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"It’s time to put empty boxes to meaningful use and the pros of Lee’s recommendations far outweigh the cons."
"The key is to keep a big picture perspective and not automatically cede your customers to the competition just because you shutter a store."
"Macy’s has lost sales for many reasons, only some of which would be relevant for opening an in-fill store, a showroom or a BOPIS store."

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21 Comments on "Should showrooms replace closed stores?"


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Max Goldberg
Guest

Stores open and stores close. It’s the reality of the retail marketplace. Replacing a full store with a showroom or BOPIS outlet may seem logical from a brand management point of view, but would it generate enough sales to be profitable for the retailer, and would the store pay enough rent to justify the landlord keeping it open? Would the public be better served by a different retailer taking the space or shopping somewhere else? If it makes financial sense for the retailer and landlord, a showroom makes sense. If not, use the space for other purposes.

HY Louis
Guest
2 years 4 days ago

Excellent point. You raise a good point regarding the financial sense for the landlord. Most likely there are better uses for the space at a large shopping mall. If a better use cannot be found, there are probably other issues with the mall that cannot be resolved with a format change.

Chris Petersen, PhD.
BrainTrust
The whole is greater than the sum of the parts. Consumers no longer separate “physical” from “digital.” Consumers expect a seamless experience, with options that suit their situational needs for a particular purchase. In some cases, BOPIS might be the best customer fit when the customer knows what they want, with the immediate availability of in store pickup. In other categories like apparel, customers are much more likely to want a showroom where they can touch and feel the product. In the US right now, the trend is to go “smaller” in terms of physical footprint, with a “larger” assortments available from the virtual shelf. If (and that is the big IF) retailers can execute a seamless experience then there is a potentially large savings in retail floor space costs, and lower physical inventory on store shelves. Results count. And the great news is that these models are all testable and highly measurable. Retailers just need to start looking a holistic metrics beyond same store sales. GMROI is the profit metric that matters on the… Read more »
Phil Chang
BrainTrust
Phil Chang
Retail Influencer, Speaker and Consultant
2 years 4 days ago

I think we need to look at all of these options. All this empty real estate represents places where the community used to go and gather before the space got outdated. To me, that means that space just needs to give the community another reason to come back.

I think that a secure pickup location for all orders would be a good thing. We hear about packages getting stolen all the time — why not create a place where people can safely and securely send their products? That builds another traffic point for the community to go, and you can build showrooms and other BOPIS around that.

Stuart Jackson
Guest

Showrooms are certainly a trend worth keeping an eye on, and they do solve the problems created when you remove a store from the community. Having a foothold, however small, can still drive sales, and helps keep up brand awareness.

There’s certainly a growing appetite on the side of retailers. “Brand pavilions” are cropping up in London, spaces where leading brands and retailers come together and showcase their collections, the newest of these will be Silvertown Quays at the Royal Docks in east London, opening in March this year. US brands have also had success with the concept, allowing customers to try, buy online and come back to pick up, notably Bonobos and Everlane, who both have a number of showrooms, or Guideshops.

Showrooms make sense because customers still want the intimate experience of seeing the clothes, checking quality and fit, and retailers can use the physical retail space more effectively. It might be counter-intuitive, but there is a trend towards using physical stores not to sell clothes but to drive traffic online.

Phil Masiello
BrainTrust

Any retailer would need to have a definitive strategy for a showroom store. Nordstrom is attempting this with their Nordstrom Local stores. Without a clearly defined and stated strategy and goals, an attempt could backfire on the brand.

Imagine the consumer still seeing the brand marquis on the store and walking in only to find no merchandise and a counter with staff unable to explain what the store’s purpose is.

There is a reason stores are closing and it is not always about the movement to online shopping. Many retailers need to take a step back and review the value they provide to the consumer. If customers are leaving them, they need to find out why before they can determine a retention strategy.

Adrian Weidmann
BrainTrust

Closing stores for a “brick-n-mortar” retailer has to be wrought with high anxiety and viewed as a “last resort” decision. While converting that store location into an alternative presence or function may be a logical process, when a retailer reaches the point where closing stores is under review, there is a need to affect a financial and perceived change quickly. The decision to close stores is a reactive decision driven by financial factors. It is rarely if ever a proactive, strategic move based on previous success. Changing an existing store into a smaller showroom or BOPIS outlet may be like slowly peeling a band-aid off — long, drawn out pain, versus just yanking it off in one swift pull — sudden pain followed by relief.

Dave Wendland
BrainTrust

It wasn’t terribly long ago that the industry “shuddered” at the thought of showrooming. As a response, those same retailers have “shuttered” operations due to inaction and denial. Lee’s article and opinions are spot on. It’s time for establishment retailers to embrace the dynamics that have occurred within traditional retail and begin thinking inside-, outside-, and all around-the-box.

The rule of good retail has not changed: delight customers by providing the right products at the right time in the right place. What has changed is how and where products are placed and fulfilled. It’s time to put empty boxes to meaningful use and the pros of Lee’s recommendations far outweigh the cons.

Neil Saunders
BrainTrust

This is a matter of economics. To work a showroom has to do at least one of two things: generate sales by acting as a brand or marketing presence, or save money by serving as a fulfillment center.

The success of both of these things comes down to the brand in question, the type of products being sold, and the area in which the store is located.

In the case of a retailer like Macy’s, I can’t see much reason for a showroom for marketing purposes. The brand is already well known; it doesn’t have much unique own-label product which is exciting enough to showcase, and it would struggle to edit down its assortment to a smaller format.

For a retailer like Nordstrom, which has developed a small-store collection format, the situation is different. It has customers willing to pay big bucks for convenience, has a well-differentiated range, and has a relatively sparse store footprint that facilitates more touchpoints for customers.

Gib Bassett
BrainTrust
This is a great idea but the retailer would probably not require the entire real estate footprint. What seems clear is that maybe 50 percent of sales opportunities can be won by serving a customer online, but having the customer themselves fulfill the order by picking up merchandise in the store. That’s a big figure that should help retailers struggling with profitability optimize stores and e-commerce. Taking this a step further, the retailer can use the physical footprint to not just fulfill orders, but cross and upsell based on insights showing those kinds of selling opportunities. Overall, this is going to be an analytics problem at its core — knowing what that particular assortment looks like how to serve that shopping mission is a “must know” to avoid stocking irrelevant products. I tend to disagree with this statement though, it’s not about transitioning customers to online sales, but better serving them how they wish to be served: “With this smaller, yet valuable product assortment, a brand can maintain a toehold in a market area and… Read more »
Lyle Bunn (Ph.D. Hon)
Guest

A closed or downsized location makes consumers wary, triggering their predator deal-hunting instincts. When extra steps are added to the purchase/fulfillment process or deals are not found, the experience and brand impact will be net negative.

Ryan Mathews
BrainTrust

Most stores close for a reason — changing fashion, changing competition, changing customers. If a store can’t sustain enough volume on its own, maybe there’s a reason and, if there is a reason, maybe it means there isn’t enough room for a showroom. There are also lease considerations, sublet potentials, etc. I’d say each of these opportunities has to be evaluated on a case-by-case basis, but my guess is that in many of them, the economics won’t work out.

Camille P. Schuster, PhD.
BrainTrust

How many customers did that closed Macy’s store lose and why? Macy’s has lost sales for many reasons, only some of which would be relevant for opening an in-fill store, a showroom or a BOPIS store. If one of the reasons is that the next store is perceived as too far away to frequent, then one of the alternate concepts presented here could be successful. Retailers need to understand why sales have dropped so much that the store needs to be closed and then consider alternatives that may alleviate permanent loss of sales.

Doug Garnett
BrainTrust
Doug Garnett
President, Protonik
2 years 4 days ago

The idea of the showroom seems great. But, there is not yet a successful showroom situation for a large retailer. So, at this point, we should be cautious.

Yes, remaining in the community is important and delivers (most likely) a higher online order rate from that area. But what are the trade-offs? Does a showroom generate enough sales with minimum customer disappointment to be worth it?

Until those questions are answered, this is an interesting idea. But also an entirely unproven idea.

Sky Rota
BrainTrust

I don’t like to see vacant stores. It is an eyesore for the shopping center, mall or street. I love the idea of pop-up-stores. Firstly because I hate to go shopping, let alone in a huge department store where you can’t find anything and no one around to help you. With pop-up-stores, you can get in and get out, and there is a sense of urgency as they won’t be around for long so you better get there fast. We are moving way faster then people used to. We don’t have to take all day to shop. Make it a place we have to hit and run! We’re good with that.

Ed Dunn
Guest
2 years 4 days ago

The showroom/BOPIS approach may have some wings with the multi-brand retail concept, with multiple retailers/brands using the same showroom space under a multi-brand licensed space operator. Great way to multiple brands to share the risk and establish a footprint in areas to test the waters before a full commitment to establishing a stand-alone storefront.

Mohamed Amer
BrainTrust
Mohamed Amer
Independent Board Member, Investor and Startup Advisor
2 years 4 days ago

No doubt that store closings can have a strong negative impact on consumers’ perception of a brand. There are many reasons for closing stores, but they all translate to basic economics — the store’s ability to cover fixed costs, having sufficient foot traffic, ability to maintain enough of the right inventory, credit worthiness of the company, and so on.

Converting the space to a showroom or BOPIS outlet ought to be considered and it may require further real estate arrangements as it’s unlikely the full square footage would be required in a new function.

A well thought through online e-commerce strategy ahead of the store closings can certainly work to continue earning customer loyalty through delivery options. The key is to keep a big picture perspective and not automatically cede your customers to the competition just because you shutter a store.

Kenneth Leung
BrainTrust

The cost per square foot for a retail space is much higher than what you would pay for fulfillment centers. If the store location doesn’t support the sales goals per square foot (which is why you close stores in the first place), it isn’t going to pay for itself as a distribution center for online pickup, delivery and a showroom. Unless the mall is willing to negotiate on the rent (which it probably won’t), and the store is closed for traffic and revenue reasons versus rent, converting it to an oversized showroom isn’t going to be profitable. Remember, even though CX is important, it has to be delivered profitably.

Jeff Miller
Guest

I think that smart retailers should look to test this idea but success will come down to 3 core factors: 1) Rent – can they renegotiate out of the leases that are the main causes of the store closing? 2) In retail, even with the rise of online, it is still crucial to consider location – location – location. Is the location a quality location for their target demo? 3) What the retailer will gauge as success for the new concept. Will they be judged by the familiar “same store sales” or “sales per square foot”?

Coming from a marketing background, I do think that the right kind of store in the right location at the right lease terms (dollars and time frame) can be a wonderful marketing expense to drive awareness and sales, but is not the easiest to measure and assess.

Craig Sundstrom
Guest

I fear this may be one of those ideas which sounds great until one gets down to the math: is it really possible for a 5K gsf space to replace a 150-200K gsf one? I realize departments stores probably follow some variant of the 80/20 rule, where most of the sales — or at least profits — are derived from a small portion of the space, but this seems to be an extreme hope (sort of a 95/5 rule). That having been said, the (downtown) Milwaukee Boston Store seems to be a beta-test of this very theory: what was, I believe, at one time a half-million square foot facility has been reduced by degrees until what is left will soon be only a tenth of that size. And that, I would say, is as small a space as one can have and still make a claim of being a multi-line, aka “Department” store. We should watch to see how it turns out.

Marie Haines
Guest
2 years 4 days ago

Interesting, I live near that closed Macy’s location and started my retail career at the former Lazarus store. In the past 20 years, as the location has moved from Lazarus to Kaufman’s to Macy’s, the surrounding retail area has been declining. Most of the strong, national retailers have relocated to newer malls in more affluent neighborhoods leaving a sad expanse of failed businesses and seedy strip malls surrounding the store. While that is a great use of an empty space it may not bring in the desired clientele to a rather sketchy environment. So the retailer would have to work with the mall and other stores to bring the area back to life as a safe place to shop.

wpDiscuz
Braintrust
"It’s time to put empty boxes to meaningful use and the pros of Lee’s recommendations far outweigh the cons."
"The key is to keep a big picture perspective and not automatically cede your customers to the competition just because you shutter a store."
"Macy’s has lost sales for many reasons, only some of which would be relevant for opening an in-fill store, a showroom or a BOPIS store."