Now that December is here, it’s time for the inevitable lists enumerating the best and worst of the past 365 days. This year, the list of lists could stretch on forever in the apparel retail space alone. Think bankruptcies, acquisitions and mergers.
Along with them will be a slew of annual proclamations seeking to characterize the last 52 weeks. Again, the choices here are plentiful, too. So here’s a first: 2017 was the year of the identity crisis for physical stores.
Depending on which retail exec you talked to, brick-and-mortar stores were either the only way toward sales salvation or a damning albatross dragging apparel companies under.
And their actions throughout the year illustrated this divide. One group couldn’t distance themselves from their boxes fast enough, closing doors, selling locations and exiting markets at a rapid clip; while the other clung vehemently to their store fleets sure that they’d prove to be the key differentiator in this new omnichannel world.
The disparate strategies were evident throughout the year, and the third quarter was no exception.
The Gap, which operates 3,193 stores across various Gap, Banana Republic, Athleta and Old Navy nameplates, announced during its latest earnings call that it will be accelerating its store closure plans. The retail group will close a previously announced 200 stores through the end of this year and next, which means the doors will go dark about a year ahead of schedule.
The move dovetails with the company’s plan to eschew “traffic-challenged real estate” in favor of accelerating “a large, fast-growing, highly-profitable, and accretive online and mobile business.”
Similarly, J.Crew is evolving its model to focus on “driving outsized growth with our strong ecommerce capabilities” along with a trimmed down store count. In fact, the company announced a larger-than-expected 50 store closure for FY17.
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A vital link
On the other hand, Zumiez, which is also enjoying strong e-commerce sales, remains bullish on physical stores.
CFO Chris Work noted the chain’s stores are an important part of its strategy, which, he said, Q3 illustrates. “While, we saw a meaningful increase in penetration in the web, with only 14.5% of your sales been completed online, then that still shows an immense comp in the actual store system in fact,” he said. “What I refer to as high mid-single-digits has to be in the store system to still achieve the 7.9 comp.”
During FY17, Zumiez opened 12 locations for a total of 659 stores in North America.
“We continue to proactively open stores in each of our geographic regions with a goal of achieving the optimal number of locations required to reach our customers and provide them with a superior level of service they expect from Zumiez’s,” said Rick Brooks.
Online backed up by an offline presence is the same approach other chains like Kohl’s and Target have touted all year. To solidify the tie between the two, retailers have rolled out a slate of services like buy online, pickup in store, which get feet—and wallets—back into their four walls.
Express is the latest retailer to acknowledge the power of these programs. The retail chain, which will have only racked up 37 outright store closures by the close of this fiscal year, is enjoying incremental sales thanks to its ship-from-store option. Though only in 150 doors now, the company is optimistic the trend will continue. “We expect the contribution from ‘ship from store’ to build in the fourth quarter as we continue to learn and adjust our processes and have a more significant impact in 2018 when we expand the capabilities to a majority of our retail stores.”
Next, it too will give BOPIS a go after an initial test that’s brought increased traffic and engagement.
These positive results are only natural according to Rebecca Duval, a retail and apparel analyst for BlueFin Research Partners, who said stores still matter—even for online devotees.
“People want to be able to return in store which gets them into the store. There is a need for it. You have to find the right size [for your store fleet]. If the customer recognizes that the brand is in a store near them, they’re more willing to shop online,” Duval said.
Who’s right?
With shoppers in and out of stores for a variety of reasons—research, shopping, pickup and returns, to name a few—the challenge becomes nailing down how to measure productivity these days. And this uncertainty may explain why the retail pack is so divided over brick-and-mortar.
“In the old world, the store was always the end point of the customer journey and that’s where success and failure was measured but now it can play an important role along the journey and still not deliver the sale,” said Matt Valle, senior vice president of consumer products and services at Magid, a research based consultancy.
In that bygone era, comp store sales told the whole tale. Today, their story is much more complicated and for those retailers who misread the signs, that can result in bad decisions, according to Valle. For instance, a retailer rushing to shutter doors because same store sales are sagging and e-commerce is surging had better know whether or not those doors are actually buoying the chain’s inflated online numbers.
To try to illustrate the intertwined nature of the customer journey and the resulting interdependence between stores and sites, some retailers are starting to roll both in-store and online sales into their comp store numbers. Duval said that ultimately could make performance that much more opaque, giving investors one less clue as to the retailer’s health. Reported separately, she said, the metrics for digital and brick-and-mortar could still provide useful clues as to whether a chain’s issues derive from its four walls or if it has bigger problems.
“If online is really strong, you know its not a brand issue,” Duval said. “It does show you the customer interest, whether its waning or not.”