Advanced Omni-Channel: Smaller Format Stores
Thursday, March 8, 2018

Categories: In-Store

Advanced Omni-Channel: Smaller Format Stores

Why would smaller format stores be considered an advanced omni-channel approach? Look no further than the Kohl’s discussion in March. Fortune magazine ran an article discussing why Kohl’s prefers to have more stores than to consolidate them. This at a time when northward of 3,600 physical retail stores had been shuttered from January to March 2017. The question was why Kevin Mansell, CEO of Kohl’s, would take such a stand and still promote his plan to get back to growth.

Shutting Physical Stores In geographic regions where physical stores closed, digital sales dropped by 10%

Mansell’s surprising finding comes from 2016. Kohl’s closed 19 stores. Their online sales were growing by 12% annually. They consolidated the 19 stores that were poor performers. Seems like good business practice. Considering little else, an inexperienced MBA might conclude that all stores should be shut, and Kohl’s should move aggressively to the high growth area only, being online.

Physical Presence Affects Online

What Kohl’s numbers showed seemed surprising. Despite the high growth of online sales, in the geographic regions where stores were closed, digital sales dropped by 10%.  So the freshly minted MBA approach would have disastrously failed Kohl’s.

Smaller Footprint

Rather than shutter any more stores, Mansell set an alternative strategy. Kohl’s now features smaller format stores. The average floorspace of a Kohl’s store is about 100,000 square feet (square meters). For a portion of their locations, Kohl’s introduced a store layout that is 30% smaller (70,000 sqft |6503 sqm).

 

Are Retailers Truly Offering Omnichannel? Find out in benchmark report.

 

Ship-to-Store Support

By using omni-channel retail effectively, Kohl’s can use a smaller footprint store, and still deliver all the goods to their customers. When shoppers order online for a pickup, the order is immediately routed to the location of choice. If the merchandise is not available, the system can quickly bring in stock from another location, for the pickup.

From within the store, if a customer does not find the item they want, a store associate can help them do a ship-to-store transfer of goods. This ensures the endless-aisle concept works for the store.

How This Helps Retailers

A robust order management system helps retailers take advantage of the ship-to-store functionSimply put, the Kohl’s example of smaller format stores can be critically important to an advanced omni-channel retail strategy. A robust order management system helps retailers take advantage of the ship-to-store function. Used wisely means a retailer can reduce the footprint of some portion of their stores, yet deliver the same stock availability to their customers. There is no issue for pickup orders, as a robust OMS can easily route the merchandise to the store for pickup. When the shopper is already in-store and cannot find what they want, either an in-store kiosk or a store associate can help them with a ship-to-store transfer of the goods.

How Much Can Retailers Save?

Although some large retailers like Sears have paid less than $4.40 per square foot ($0.40 per SQM) for their retail space, most smaller retailers can expect to pay more than that. Typical in-mall prices are more likely to be $18.55 per square foot ($1.72 per SQM).  That is not considering the peak areas like upper fifth avenue in New York, which saw prices of $3,500 per square foot.

Let’s presume that Kohl’s were paying $8 per square foot for their mall locations. Their savings per reduced format store would be $240,000 per store. Across those 19 stores that were downsized rather than completely closed, that amounts to $4.6 Million dollar saving. That’s $54.7 Million per year!

Now, imagine using an advanced omni-channel approach of reducing some of your store footprints by better leveraging your ship-to-store capabilities. How much could your retail chain save, annually?

Author:

Charles Dimov - Director Marketing OrderDynamicsCharles Dimov is Director of Marketing at OrderDynamics. Charles has 21+ years experience in Marketing, Sales and Management across various IT and Technology businesses. Previous roles include Chief of Staff, Director Product Marketing, and Director Sales. Charles has held roles in brand name firms like IBM, Ericsson, HP, ADP, and OrderDynamics.

 

 

 

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