Growing Out of Business
By Kevin Kulinowski, Robert Grosskopf and Rick Edwards, Gordon Brothers Group
The defining paradox of our industry is that closing stores has become a trademark of successful retail companies. Certainly healthy retailers are opening new stores; but shuttering locations has become the norm as well and, in most instances, is equally indicative of positive growth.
There are numerous reasons why retailers close stores, from simply relocating to a better position in the same market to closing a lower-performing store. Regardless of the reason for winding down a location, a retailer faces complex challenges when a store closes.
However, retailers that approach store closings as viable opportunities to grow the business, rather than just go out of business, can capitalize on store-closing events. Retailers have perfected store openings and store operations, but store closings require very different tactics to be successful. When the decision is made to close a store, the ideal scenario is to approach each closing as a unique opportunity to monetize inventory and assets, fortify the retail brand, and promote future sales. Through many years of experience, we have developed the following guidelines to maximize these opportunities for healthy companies when they arise:
Rule No. 1: Go out with a bang, not a whimper
As an event merchant working on behalf of retailers to close thousands of stores, we have found it is most efficient and cost effective to conduct a managed store-closing event that leverages promotional campaigns to maximize recovery.
By turning the store closing into an exciting event, retailers and event merchants are more likely to maximize value and monetize all the assets at the store location, from inventory to furniture, fixtures and equipment.
Although the process of hosting a store-closing event may seem fairly straightforward, each retailer is unique and each event should be customized to meet their specific needs. For instance, the retailer’s brand and culture must remain intact throughout the event, and the company must uphold consistent store operations and housekeeping standards to maintain a consistent customer experience
While store-level managers and associates are focused on day-to-day necessities during the closing, an event merchant or the retailer’s corporate management should initiate advertising campaigns and special promotions that pull traffic to the store-closing Event while simultaneously building excitement for new locations and the retailer’s brand.
Rule No. 2: Sell to the bare walls
A store-closing event should encompass 100 percent of the inventory, ideally selling merchandise above cost, liquidating the inventory in place to avoid the expense of moving and storing goods, and selling everything in the store down to the bare walls.
A retailer’s total return comes not only from hosting a productive sales event, but doing so with cost-effective efficiencies that eliminate the need for the logistics and manpower associated with packing and transporting unsold merchandise. In total, the wind-down process can be completed in a timely fashion, typically just four to eight weeks.
In some cases, the retailer’s vendor agreements prohibit discounting select merchandise. This occurs most often with low-margin, high-demand products such as cosmetics or luxury brands. In those instances, the merchandise that cannot be discounted is either price-protected or moved to other stores before the closing event begins to prevent any confusion. However, inventory that falls into a vendor-restricted category is the exception, not the rule, and a store-closing Event will usually drive the expedient sale of all other merchandise.
Rule No. 3: Transition existing customers and acquire new customers
In addition to clearing out inventory and monetizing assets, the store-closing Event is a pivotal opportunity to build awareness and excitement of new stores in the market as well as spotlight the brand’s direct channels such as e-commerce or catalog sales.
The should proactively market other locations in the area and weekly promotions should be used to help transition customers to the retailer’s on-going stores and retain the brand loyalty of existing customers. If the retailer is exiting the market, promotional offers might push customers to the retailer’s website.”
We deploy a full spectrum of promotional tactics during these events, from traditional bag-stuffers and handouts to mobile coupons, social media outreach via Facebook and Twitter, and messages conveyed through blogs pertinent to the store’s local market.
During a closing event, retailers often attract value-motivated shoppers who may be visiting the store for the first time. In-store signage and special offers can be used to encourage newcomers to develop an affinity for the brand and shop at the retailer’s other stores or through direct channels.
Rule No. 4: Cover all the bases
Success hinges on the retailer’s ability to effectively merchandise and discount the inventory so the event continues to attract shoppers even as the selection of merchandise dwindles. Seasonal, clearance or slow-moving product is often consolidated from nearby stores enabling the retailer to effectively leverage the store-closing event to liquidate excess inventories from across its portfolio. This helps position new and on-going stores with an optimum selection of merchandise. Additionally, the event might be used to sell assets beyond store inventories, including furniture, fixtures and equipment (FF&E) in the store as well as merchandise and FF&E in warehouses, call centers and corporate offices.
In such store closing scenarios, we sometimes transfer FF&E from the closing locations to be used in other on-going locations. There may also be proprietary fixtures that are no longer needed and if these could be identifiable to the retail brand then we handle the disposition so they do not resurface in other formats.
Retailers can measure the success of a store-closing event by the results of the liquidation, as well as by the redemption rate of promotional offers that were presented during the event and subsequently redeemed at neighboring stores or online. Ultimately, the retailer has to meet financial goals while maintaining brand integrity; and if the retailer partners with an event merchant, the results achieved must exceed what they could have done on their own.
Kevin Kulinowski is president of the retail division of Gordon Brothers Group, where he oversees operations and lends specific merchandising expertise, strategic planning and leadership to asset disposition deals.
Robert Grosskopf is principal & managing director of the retail division of Gordon Brothers Group, and responsible for managing all the complex issues surrounding inventory dispositions and maximizing the recovery values for retailers' underperforming assets.
Rick Edwards is principal & managing director of the retail division of Gordon Brothers Group, and is responsible for the development of evaluation techniques and inventory assessment measurements, which have become industry standards.