Retailers Are Optimizing Foot Traffic Through Right-Sizing

The current economic environment has many industry watchers wondering whether another wave of retail turmoil is on the horizon. But the last round of so-called retail ‘right-sizing’ could prove instructive for many brands struggling to come to terms with their physical footprint.

“Not all store closings are signs of a retail apocalypse. In fact, there is ample reason why the thinking about rightsizing needs to shift,” a group of analysts from Placer.ai write in a new whitepaper. “Rightsizing has been classically seen as a softer terminology to discuss store closures. But there is a significant trend of rightsizing that is more focused on optimization. If a chain can reach the same audience with 80 stores that it can with 90, why not reduce the operational cost/? If a brand can leverage a wider mix of store formats to better reach a specific market – this push can drive greater long term success.”

The team points to Macy’s, Nordstrom, and JCPenney as examples of department store brands that have strategically closed stores and seen foot traffic increase at their open locations. While nearly 2,200 department store branches closed across the sub-sector between 2011 and 2020, fewer stores has equaled larger trade areas for brands like Macy’s, which announced it would close one-fifth of its store count in 2020.  Rather than signaling the death knell for the brand, Macy’s saw the number of visitors per venue increase as well as an increase in its average trade area size. And as Nordstrom strategically closed underperforming stores, its financial outlook improved dramatically.  JC Penney also came back from bankruptcy (and the closure of 30% of its store fleet) to increase its geographic trade area as well. 

“These three department stores demonstrate that rightsizing can have significant benefits for improving store fleet efficiency,” the report notes. “Many former growth strategies were centered around simplistic understandings of trade areas and demographic breakdowns, resulting in an overabundance of locations. As new technologies offer a better understanding of store reach and audience shifts, retailers can optimize retail footprints to maximize the potential of each location. This enables the more strategic distribution of stores, as well as deeper insights into how to drive longer term success establishing longer lasting locations.”

Placer.ai also maintains that closing stores to curb cannibalization can pay off, pointing to the example of Albertsons, which closed two of five stores it operated within a ten-mile radius and saw foot traffic to the remaining three venues increase significantly.

And as brands like Rite Aid and CVS pivot from solely retail sales to a mix of retail and online and offline healthcare services, rightsizing their store counts makes sense strategically.  In November, CVS said it would close approximately 900 stores over the next three years, a move Placer.ai’s Shira Petrack said earlier this year means the brand is “operating from a position of strength.” 

“The announced store closings do not stem from any financial need to downsize its store fleet,” she said. “Instead, the move should be viewed in the context of ‘right-sizing’ to optimize its store fleet and execute its strategy of enhancing omnichannel health services to meet the needs of consumers when and where they want it.”