Maximizing The Box

I decided to take a break from the history of omni-channel to discuss a concept I encountered last week. I’ll be back to the history in a couple of weeks. The concept I want to explore this week is about the economics of the store – the individual store’s ability to grow and make money. The theory I heard went like this: retailers can no longer depend on opening new stores in mature markets as a method of growth, and so their efforts in those mature markets must turn to maximizing the potential of the existing store base.

To pursue this line of thinking, you must first agree that the underlying assumption is true: that retailers in mature markets can no longer depend on opening new stores to drive growth. RSR published a study last October that defies this assumption. The study, Retail Growth Strategies in 2014, found that retailers in mature markets continue to believe that one of their top opportunities for growth is in opening new stores in existing geographies.

shopping mall

I’m not sure what to make of this perception. I suspect that it’s a bit of the tragedy of the commons, the economic principle that, as Wikipedia puts it, “states that individuals acting independently and rationally according to their own self-interest behave contrary to the best interests of the whole group by depleting some common resource.” In this case, the self-interest is expansion of the store base as a relatively easy way (certainly a well-understood way) to drive growth, and the common resource is consumer spending.

I do believe that eventually, it will become true that mature retailers in mature markets will not be able to drive enough growth to satisfy investors purely by opening new stores. And that moment may be on us sooner than we think. When that moment comes, the question retailers will have to ask themselves is “How do I drive more growth out of my existing stores?”

Omni-channel retailing holds a lot of the answers. Here are just a few that I came up with: ways to drive revenue growth out of your existing stores.

Store as physical touchpoint for online order pick-up and returns. A lot of retailers are doing this today, and even more of them are looking to a future where they leverage the store’s inventory to meet that online demand, rather than ship from an eCommerce distribution center. But I don’t know that retailers look at how to drive store growth out of that touchpoint. Do you place in-store pickup and returns right at the front, like Best Buy? Or do you put it all the way at the back, like Walmart? You have to strike the right balance between ensuring that the store gets a shot at the incremental trip vs. annoying a customer by forcing them to trudge through the entire store to get their online order. Retailers need to have specific plans and strategies for turning an online order visit into a store visit.

Store as local DC. This might seem, on the surface, like deciding to use a penthouse apartment on Park Avenue in New York as storage space. Retail stores are expensive real estate because they are expected to drive sales. But I’ve heard a lot of complaints from some local retailers lately: their landlords are raising their rents, and the retailers are pushing back, saying, “You’re not driving traffic to my location.” If people don’t come, then why should the retailer pay more? Well, it may be that retailers need to bring the products to where the traffic is – the home. And if stores are considered more holistically as part of a supply network, it will enable the retailer to drive more overall customer value, by being faster and more responsive to local shopper needs.

Store as call center. With telecommunications technologies what they are today, it’s not inconceivable to support a virtual call center – one that routes calls to a lot of distributed locations, rather than force them all into a central facility. I think there are a couple of advantages to the idea of having store associates step in to sometimes fill call center roles. One, they get a lot more interaction time with customers this way, which will only help them be better at customer service. Two, you have an opportunity to connect local callers to local resources. This is an invaluable way of building local relationships – relationships that translate into a greater willingness to come to the store to meet that helpful associate in person.

Store as customer service center. Here, the emphasis is on service, or rather services – the kinds of things that requires a person physically doing something to a product. For stores to pull this off, they must first be invested in services that support the products that they sell. For example, REI provides bicycle repair services, and Best Buy provides Geek Squad. I firmly believe every retailer can come up with services to accompany their products. Ultimately, consumers buy products to fulfill needs. All retailers need to do is figure out how else to solve those needs. Executing on this, though, is not easy. It’s even more difficult than getting the right products to the right shelves at the right prices – and that is challenging enough. But if you want to drive additional value out of existing stores, services are a great way to drive repeat visits, as well as build that local relationship with the local consumer.

There are many more – I don’t have enough space to list all the ways that you can rethink the store to drive more revenue. Some of these things require investments in order to generate a return. You can’t just wave a magic wand and expect change to happen. And some of these things challenge what retailers expect out of stores today, and most especially what they expect from store associates.

But I think the retailers who look at their existing stores this way – not as a “marketing must drive traffic to my stores” but as “how do I utilize my store location more in order to drive sales” kind of challenge – those retailers who tackle the latter question have an opportunity to differentiate themselves. “Selling stuff” will always be the primary objective of a store. But how that store achieves that objective – omni-channel is changing that. For good.