An open and shut case

We examine the factors which make retailers decide to open new stores or close existing ones.

The opening and closure of stores is ultimately an outcome of a wider decision-making process, factoring in three key considerations:

• Market opportunity: what is the current and future opportunity for my brand – growth, consolidation, retraction?

• Consumer behaviour – how does the target customer want to engage with my brand – physically/digitally, branded stores/concessions, regional malls/high streets/retail parks?

• Business model – how can I drive consumer engagement and maximise sales and consumer satisfaction profitably?

Each of these elements are in a constant state of flux – market opportunity is dictated partly by a brand's behaviour, but also by wider factors including the state of the economy and competitor behaviour. Consumer behaviour, both in terms of habits and perceptions, is increasingly volatile as wider choice creates varying preferences amongst consumers about what they expect from a brand. And business models are constantly evolving, as brands seek ways to react to both consumers, suppliers, and the markets they source from and sell in.

Upon gaining an updated understanding of brand opportunity, decisions around the need, role, location, size, and viability of stores can then be made, both in terms of reviewing current estate – what are the drivers of performance, what does `good' look like – to future estate – what is the headroom for stores and where should they be?

Marks & Spencer
M&S revealed at the end of last year that as part of their plan to restructure their retail footprint, 67 full-line stores are estimated to close over the next five years. These are typically in locations where the market size does not justify provision of a full-line store, with smaller, more efficient grocery-only stores preferred, that can also facilitate click and collect orders.

However, in January 2023, M&S announced that they will be opening 20 new stores across the UK, five of which will be opening in former Debenhams locations and taking advantage of their placement at prime locations such as Manchester's Trafford Centre, Leeds White Rose, and Birmingham Bullring. M&S chief executive Stuart Machin revealed that physical stores are still a core part of their omnichannel future and that this rotational store programme is about making sure M&S has the right stores in the right place with the right space.

John Lewis
John Lewis on the other hand faced numerous dilemmas regarding the reopening of their stores in 2021 following the pandemic. Of the 42 stores temporarily closed, John Lewis only chose to reopen 34. The remaining eight faced demand issues given the shift to online shopping with little prospect for the stores in those locations to achieve the improvements in performance to sufficiently contribute to the overall performance desired by the business.

The John Lewis Partnership is currently focusing on understanding how to maximise existing assets. This is to ensure they drive the best return possible. They aim to do this through augmenting their Waitrose stores which are typically located in affluent parts of England by building surrounding residential sites. They will then retain those residential properties and rent them out.

Primark
Primark was set to open ten new stores internationally before Christmas 2022 and is on track to add a remaining 17 across the current financial year. As part of their £140m high street investment plan, they will open four new stores across the UK in the next two years. These decisions were made despite expecting further significant cost inflation. However, Primark anticipate they will be able to recover this capital expenditure due to the diminishing volatility of their input costs and the success of their click-and-collect trial launch. Primark believes that their stores will always be at the heart of their business and investing in expansion plans and in store experiences are their biggest opportunity.

Due to the increased consumer demand for online channels and home delivery in recent years, many retailers have invested heavily in their online and back-of-house logistics and subsequently need to scale back their physical store operations and close locations, including some that may be profitable. Now that the pandemic is over and consumers are starting to recognise the value of physical stores once more, it leaves retailers in a pinch as they try to determine the optimum reaction to market opportunity, consumer behaviour and the business model that will drive both short-term and long-term profitability.

How Pragma can help
We have a wealth of experience assisting investors, retailers, food & beverage and leisure operators inform their store estate decision-making. We carry out an extensive location strategy analysis to understand both the drivers of current performance, the trends impacting future performance, and identify and quantify the number of the locations that can deliver desired future performance.

Mukhriz Mustamir