.png)
Around 2010, a new phrase began circulating – “retail apocalypse.” Brick and mortar stores were closing following the 2007-2008 recession and the rise of online shopping was in full swing. Staples of the American retail scene – Blockbuster, Toys “R” Us, Borders – were beginning to disappear.
But despite doom-and-gloom predictions, many retail categories and legacy brands have seen sustained growth over the past decade. More recently, brick and mortar retail surprised many by bouncing back so quickly from the lockdowns and pandemic restrictions.
Still, it is undeniable that larger store closures are becoming increasingly common. The pandemic brought a record-breaking number of store closures in 2020, and analysts are predicting tens of thousands more closures in the coming years.
Not all store closings are signs of a retail apocalypse.
But not all store closings are signs of a retail apocalypse. In fact, there is ample reason why the thinking about rightsizing needs to shift. 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 process of rightsizing is about each retailer asking how to best deploy stores to accomplish its wider goals, and our interaction with the terminology needs to adapt accordingly.
In this white paper, we dive into several case studies of companies who have closed stores, are currently closing stores, or deploying different format approaches as strategy rather than as a means of survival. Using our location data, we uncovered the positive impact that strategic rightsizing can have on neighboring branches and on the company as a whole.
Keep reading to find out which brands are doing rightsizing right, and what other retailers can learn from their approach.
The department store fleet consolidation isn’t just helping these companies’ bottom lines – it is also increasing the efficiency of each store’s geographic reach.
Department stores were once a symbol of American success. But between 2011 and 2020, almost 2,200 department store branches closed across the country, according to IBISWorld. And according to location data, the department store fleet consolidation isn’t just helping companies’ bottom lines – it is also increasing each store’s geographic reach.
Back in February 2020, before the COVID-19 pandemic hit retailers, Macy’s announced that it would close 125 stores by 2023 – about one-fifth of its store count. At the time, some predicted that the store closures marked the beginning of the end for Macy’s.
Instead, as the underperforming stores closed, Macy’s saw the number of visitors per venue increase – the new and improved store fleet was attracting foot traffic more efficiently. Since the closures, the brand has also seen an increase in its average trade area size (the geographical area Macy’s customers are coming from). As of Q1 2022, Macy’s trade area was larger than it was pre-pandemic, meaning that people are willing to go a little further in order to shop at Macy's.
Nordstrom, another legacy department store, has also found success by rightsizing. In May 2020, the brand announced that it would permanently close 16 of its 117 full-line stores, as well as three luxury specialty stores. So far, it looks like this strategy is working – Q1 2022 sales exceeded expectations so impressively that the brand has changed its financial outlook for the year.
Similar to Macy’s, Nordstrom’s trade area size has grown significantly since the rightsizing.
And, similar to Macy’s, Nordstrom’s trade area size has grown significantly since the rightsizing. A comparison of average trade area size from Q1 2019 to Q1 2022 shows that in 2019, 70% of Nordstrom customers came from an average 179.5 square mile area around the store. But by 2022, the brand’s average trade area size had increased by over 20 miles to encompass 205.7 square miles.
JCPenney filed for bankruptcy in May 2020 and announced that it would close roughly 30% of its 846 physical locations over the next two years. The retailer was subsequently sold to Simon Property Group and Brookfield Asset Management and continued implementing the store closure plan.
By Q1 2022 JCPenney’s average trade area had grown larger than it was pre-pandemic, increasing from 135.4 to 151.3 square miles between Q1 2019 and 2022.
Continuing with the trends seen at both Macy’s and Nordstrom, JCPenney’s average trade area has grown larger than it was pre-pandemic, increasing from 135.4 to 151.3 square miles between Q1 2019 and 2022.
These three department stores demonstrate that rightsizing can have significant benefits for improving store fleet efficiency. 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.
Retailers may also choose to downsize their store fleet in areas where their store density has become too large – leading to self-competition and cannibalization. We looked at examples from Albertsons and CVS, two retailers that recently closed cannibalizing stores and improved the efficiency of their traffic distribution.
Following the closures, the still-open Albertsons stores absorbed some of the traffic that had previously gone to the closed properties.
In January 2021, Albertsons announced that it would be closing two Irvine, CA locations the following month. The two, now-closed grocery stores, had been located near three other Albertsons locations, and all five venues were operating roughly within ten square miles of one another. Following the closures, the remaining three venues all saw an increase in their trade area size, as the still-open Albertsons stores absorbed some of the traffic that had previously gone to the closed properties. One branch located on Jeffrey Road saw its trade area grow from 24.9 square miles in Q4 2020 to 33.1 square miles in Q1 2022.
In addition to the growth in trade area size, monthly visits to the still-open stores also increased following the closures. At the Albertsons location on Campus Drive, for example, year-over-three-year (Yo3Y) foot traffic in January and February 2021 was down 17.3% and 13.9%, respectively. But following the closures, visits to the Campus Drive location began to pick up, and by May 2022, the location was seeing a 32.4% increase in visits relative to May 2019.
Albertsons recently launched its own retail media network, so maximizing the reach of each branch is more important than ever.
Albertsons recently launched its own retail media network, so maximizing the reach of each branch is more important than ever. As the company continues to optimize its physical footprint and establish itself as a customer-driven business, Albertsons is on track to unlock the full potential of every store in its fleet.
Pharmacy brands are re-imagining their physical footprint to go along with their new strategy.
Over the past two decades, the emergence of online shopping has had an impact on many different retail sectors, including pharmacy. Category leaders such as CVS and Walgreens have ramped up their omnichannel capabilities. Meanwhile, Amazon, Walmart, and other superstores now sell medication, toiletries, and makeup both in-store and online, which has led pharmacy brands to invest in providing healthcare services to supplement retail business. Now, pharmacy brands are re-imagining their physical footprint to go along with their new strategy.
In November 2021, CVS announced plans to close 900 stores – nearly 10% of its fleet – within the next three years. According to CEO Karen Lynch, the company is “re-imagining CVS locations as health care destinations,”. CVS also has many overlapping locations, so, like with Albertsons, closing stores will reduce cannibalization and increase efficiency.
95% of customers who visited the now-closed CVS had also visited the two neighboring CVS stores.
One of the first locations to close was a CVS on Main St. in Norman, OK, that shut its doors in early June 2022. A look at the trade areas of the closed venue and of two nearby CVS stores over the past year shows that 95% of customers who visited the now-closed CVS also visited two neighboring stores in the past year. The significant overlap between the trade areas of the closed and open stores means that the customer traffic from the Main St. location is likely easily absorbed by the remaining venues – helping the company save on operational costs without losing customers.
As Albertsons and CVS show, companies that can successfully identify cannibalization and close overlapping stores will not only cut operating costs but significantly improve efficiency and traffic allocation to existing stores. This push can help brands reduce costs while still serving the same audience, an element that becomes especially important with the expansion of in-store services.
Rite Aid has faced a tumultuous few years. Following a failed merger attempt, the company completed the transfer of almost 2,000 stores to Walgreens in March 2018. By April 2020, Rite Aid had consolidated its physical footprint to 2,450 stores – nearly halving its nationwide store count within two and a half years.
By December 2021, the company’s rightsizing was already bearing fruit – average visits per location were up by 70% as compared to January 2018. The brand plans to close an additional 145 stores by the end of 2022, expecting a $60M EBITDA benefit from the closures according to the company’s CFO.
As part of the company’s growth strategy, Rite Aid is focusing on loyalty and omnichannel diversification. On the e-commerce front, the company is investing $300 million over the next three years to enhance its digital experience and modernize its tech stack. Rite Aid also announced plans to increase its portfolio of private label products and services, build small-format stores in underserved locations, and expand partnerships with consumer-oriented retailers.
Loyal visitors to Rite Aid locations have been increasing steadily, proving that loyalty programs can be a significant driver of foot traffic.
Another pillar of Rite Aid’s growth strategy is its revamped loyalty program. The company began working with marketing company dunnhumby in 2021 to utilize customer data models and consumer-led insights to improve customer value perception of its loyalty plan. And loyal visitors to Rite Aid locations – people who visited a store at least twice in a quarter – have been increasing steadily, proving that loyalty programs can be a significant driver of foot traffic.
Rightsizing doesn’t just mean closing stores – for some retailers, like Barnes & Noble, rightsizing can mean literally resizing the store area. The retailer, which is still the largest brick and mortar bookseller in the US, used to command two-to-three story locations that drew focused shoppers and all-day browsers. But over the past few years, as much of book-selling moved online, the chain had to close locations due to a drop in the offline demand for books.
Like savvy businesses do, the company has found a way to take advantage of these closures and turn them into opportunities. Elliot Advisors, which bought the company in 2019, appointed James Daunt, head of the UK-based Waterstones bookstore chain, as the new Barnes & Noble CEO. Under his management, the chain has revamped its retail strategy, following a similar approach to the retail turnaround that Waterstones undertook.
The chain’s new strategy includes fighting against “chain uniformity” by allowing each location’s staff to curate book selections according to their community's needs. The company also took advantage of the pandemic shutdowns to redesign and refresh 350 of its stores. Essentially, Barnes & Noble is empowering each branch to operate as a quasi-independent bookstore while maintaining the buying power of a retail behemoth.
As part of the shift towards locally-embedded, community-oriented bookstores, Barnes & Noble is also resizing its venues.
As part of the shift towards locally-embedded, community-oriented bookstores, Barnes & Noble is also resizing its venues. According to Daunt, the chain can drive the same volume out of a 8,000 square foot store as a 25,000 square foot store. In June 2020, for example, the company announced the closing of several large and costly locations. At the same time, Barnes & Noble opened a 14,000 square feet new location in Sarasota, FL – half the size of Sarasota's other Barnes & Noble location.
Location data indicates that smaller format stores are indeed giving Barnes & Noble significantly more bang for its buck.
Comparing the two Sarasota, FL locations shows that the resizing is paying off. The smaller North Cattlemen Road location, which opened in June 2020, is seeing more than double the number of visitors per square foot than the neighboring South Tamiami Trail location, which is closer to the average Barnes & Noble size of 26,000 square feet.
The North Cattlemen location saw 3.23 visitors per square foot in Q1 2022, while the South Tamiami Trail saw just 1.38 visitors per square foot - less than half the visits per square foot of the smaller location. The location data indicates that smaller format stores are indeed giving Barnes & Noble significantly more bang for its buck.
A similar pattern can be seen in Maryland. The Rockville Pike location opened in August 2020 at 13,000 square feet, and is located just a 15 minute drive from the traditional, large-format store on Grand Corner Ave in Gaithersburg, MD. Here too, visits per square foot at the smaller format store have consistently outpaced visits per square foot at the larger location.
The concept of a small format store can also give retailers the chance to expand in urban areas and large cities — particularly those with limited space and high rents. The merchandise in smaller stores is also often more heavily curated than in larger venues. This gives larger companies the opportunity to offer hyper-localized products and services that could boost customer acquisition and retention.
A comparison of Bloomie’s in Fairfax, Virginia, and adjacent Bloomingdale's in Tysons Corner Center during Q4 2021 showed some fascinating differences. Firstly, and unsurprisingly, Bloomie’s attracted visitors from a much smaller radius than Bloomingdale's did. Only around 40% of Bloomingdale's visitors came from a 10-mile radius, but nearly 70% of Bloomie’s visitors arrived from that distance. Bloomingdale's also saw a higher percentage of visits in the morning hours (two-thirds of daily visits were before 4 PM), while Bloomie’s saw visits spread out more evenly across the day. And Bloomie's witnessed a significantly higher median length of stay than Bloomingdale's did – 44 minutes median stay for Bloomie’s compared to 31 minutes for the nearby Bloomingdale’s.
These differences point to a defining feature of these newer formats – they are complementary to the existing strength the department store brand has already shown. Whereas Bloomingdale’s gains strength from the mall format it generally calls home, Bloomie’s smaller footprint enables locations in different types of areas, which offers the ability to better target certain segments and to align merchandising accordingly.
Many retailers have overcome the steady stream of challenges by drawing on a wide array of tools at their disposal – including rightsizing.
The death of brick and mortar retail has been repeatedly predicted over the past two decades. But in reality, many retailers have overcome the steady stream of challenges by drawing on a wide array of tools at their disposal – including rightsizing. Brands are optimizing their physical footprint and seeing their geographic reach, visits per venue, and visits per square foot increase as a result.
As the retail landscape continues to evolve post-pandemic, we will continue seeing more of these shifts. Brick and mortar retail is not going anywhere – it’s just adapting to the times.
Several major department stores have been downsizing their physical footprint with resounding success. Macy’s, Nordstrom, and JCPenney have all strategically closed stores and seen foot traffic increase at their open locations while also growing the geographic reach of the remaining stores.
When Albertsons closed two of five stores it operated within a ten mile radius, foot traffic to the remaining three venues increased significantly. Avoiding store overlaps that lead to cannibalization helps cut costs and increase reach at the remaining locations.
It made sense for Rite Aid and CVS to have massive store fleets when retail sales represented their primary revenue stream. But both brands are now pivoting to offer customers a range of online and offline healthcare services, and rightsizing their store fleets to support their new healthcare-focused strategy. Rightsizing efforts play a key role in maximizing these shifts, by aligning store location strategies with the types of services being offered.
Bigger stores don’t necessarily drive heightened foot traffic. In the case of Barnes & Noble, smaller format stores have been receiving significantly more visitors per square foot than the traditional, large-format locations. A shifting approach to store formats empower brands to bring the right size and approach to each market. This is especially helpful for avoiding cannibalization within a market or bringing an innovative format to areas where existing approaches could be space or cost prohibitive.
.svg)
