Why big retailers are running away from 'zombie' stores

Simon Evans
Sep 16 2016
Big established retailers are in fear of “zombie” stores.
They are still there but feel dead because the space is simply too big and built for an era before the internet up-ended retailing. Stock levels are lower because fewer customers are coming in and those that do are frustrated by staff levels that have been cut to a bare minimum. Grim-faced store operators see it in the weekly store productivity figures, which are getting lower and lower.
The trimming of store sizes, and in some cases outright closures, is a delicate balancing act for big retailers wrestling with the legacy of large store networks, and poses a challenge for department stores and discount department stores in particular. Myer, which under chief executive Richard Umbers’ turnaround plan has cut its total retail footprint by 5.9 per cent from a year ago, announced more store closures and space hand-backs in regional and suburban locations at its full-year results on Thursday.
Smaller stores with higher productivity and better sales per square metre are being pursued even by big offshore retailers such as British department store Debenhams, which will open its first Australian store in late 2017 in Melbourne. But it’s a cut-down version of the full-scale outlets in its home market, with the Debenhams store in the heart of the Melbourne CBD to be 3900 sqm, half the size of a traditional Debenhams.
Queues outside the Apple’s Sydney store: High-traffic experiential stores are the new model of retailing.
But it’s not all headed one way. Online retailers who have built successful businesses with smart digital marketing increasingly want to expand their reach and put their brand in front of more people. Small physical stores or “experiential” displays in areas of high foot traffic are being pursued as the next leg of growth, and the foot traffic is often highest in big shopping centres where the energy levels are high. Frank Lowy’s Westfield Corp is trying to make shopping centres even more vibrant, buying a Broadway film and television business to bolster live entertainment and shows inside his centres.
Meeting in the Middle
Paul Greenberg, the executive chairman of the National Online Retailers Association, said on Friday there was a shift both ways. “It’s a meeting somewhere towards the middle,” he says.
The established retailers have had a tough challenge in cutting their store networks, he said.
“Bricks are a wonderful asset but they do have to be optimised,” he says. But there was no doubt that a combination of bricks and clicks was becoming more popular, and online operators are seeking ways of pulling more customers in through “experiential” offerings.
Those offerings are still evolving. “You’ve got to give people a reason to visit,” he says.
E-commerce pioneer Amazon opened its first physical bookstores in the US this year.
Shopping Centre Council of Australia executive director Angus Nardi said retail was “dynamic and competitive”. “Shopping centres are constantly remixing their tenants and integrating digital technology to ensure their centres remain appealing and accessible to customers,” he said. Mr Nardi said there had been strong growth in non-retail services, which now accounted for about 16 per cent of shopping centre floor space.
A Commonwealth Bank retail insights report in July found that 18 per cent of online-only retailers in Australia were planning to set up a physical outlet in the year ahead.
Mark Ritson, a retailing and marketing expert from Melbourne Business School, said the big department stores had a substantial asset through their long history and store network, but if they were starting now they would have the smaller footprint of smaller stores. But the e-commerce players were also recognising the value of a physical presence for brand-building purposes. “The difference is in the proportions,” Professor Ritson says.
Apple has one of the best business models, with impressive showroom-style stores in high-traffic areas. Each company is trying to optimise the best mix of retail stores and digital presence.
“Companies are trying to rebase their business and the market is moving very quickly,” he says. It was a combination of presenting their brands in the best possible way to the widest possible market, driving traffic in both digital and physical outlets, but doing it profitably,” Professor Ritson said.
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