Retailers urged to slim down store portfolios

Research from business advisory firm Deloitte released today shows online sales are already equivalent to more than 60 million sq ft and claimed by the time online sales mature this could increase significantly, potentially rendering large amounts of space obsolete. 

The report claimed a ‘barnacle effect’ - where retail management develops an attachment to absolute shop numbers - is in danger of putting some retailers’ survival at risk by not tackling the issue of excess physical space sooner.

The firm called for retailers to shed their historic focus on preserving sales volumes and store numbers.

Earlier this year, Deloitte forecast that some retailers would need to downsize portfolios by as much as 40% as the digital age drives fundamental structural change in the sector. 

Purchases in store with no prior online research remains the biggest single channel for non-food transactions accounting for 72% of total sales.

Stores will remain a critical element in the multichannel world but Deloitte questioned whether acquiring new space, renewing existing leases or downsizing an existing retail portfolio should be paramount.

Deloitte real estate director Hugo Clark said: “The death of the high street is far from being a reality, yet stores are now just one part of a larger, more connected customer experience and many retailers are struggling to define the relevance and future contribution of their physical space. Shops now represent a potentially clumsy, fixed point in an increasingly mobile world.

“The challenge for retailers is to ensure the process of downsizing their portfolio is driven by strategy, not opportunity. This must be based on a clear vision of what the ideal footprint should look like, rather than simply cutting stores as and when leases expire.

“Retailers need to establish the business case for each store, map lease expiries against store performance and understand the potential impact on performance of future rental increases.”

Clark said that reducing portfolios is not easy due to “inflexible” lease structures. He added: “The mistake that many retailers make is waiting until the eleventh hour to rightsize their portfolio, when cash to support lease surrenders is not available.”