Replacing unviable with viable

The recent trend in the retail industry is that retailers are shifting their unviable retail stores to some other places to keep intact the margin-line. Though the sole objective is to replace the rotten apple (unviable stores) in the basket, but there are other facts too that drive the trend. Recently, Spencer’s Retail Ltd, and Aditya Birla Retail’s More have relocated their unviable retail units. Here’s what our retail analysis says!

 

Leading factors

High rentals: Speaking to a few retailers revealed that the high rental is the prime factor that leads a retailer to relocate. Mr Thomas Varghese, CEO, Aditya Birla Retail, reasons, “Most often, we relocate our outlets if we are paying rents substantially higher than the rent to revenue ratio mandated in our business model.  In such situations, since we have a loyal customer base, we, typically, first try to renegotiate with the landlord both absolute rent as well as the rent to revenue ratio.  In some cases, we also try and resize our locations.” Though now revenue sharing with the real estate developer has also come up, but the concept needs more time before it spreads its root in India.

Footfalls: Shifting stores from malls to high streets and vice versa happens if the present location is not attractive enough to have high footfalls. Mr Vineet Kapila, President, Spencer’s Retail Ltd thinks, “A store is relocated when the catchment area turns out to be unviable.”

Tapping the new markets:  Often, to tap some virgin markets, retailers opt for new locations. The reason here is to tap some new customers that are beyond the reach of the earlier location.

Upgrade facilities and equipments: To upgrade the supply and management chain and other facilities too, retailers sometimes relocate their stores to a more suitable location.

 

Loss of loyal customer base -  a challenge

Retail relocation sometimes invites loss of loyal customer base. To cope with the loss, start organising events on everyday basis before shifting to a new location. The objective is to strengthen the bond with your loyal customers so that they visit your store even after relocating. The event organising activity should be very creative and must bring forth some “Happy Hour Show” at the store. Also, to inform the customers, retailers should advertise through print and electronic media about the new location of the store. The PR agency can also do the needful for retailers. However, if retailers are changing their retail location because of the lower footfalls then there is no question of losing the customers. This does not call for happy hour shows.

 

Testing the water 

Before finalising the new location, retailers should take measures to avert the dicey situations. First of all, retailers should conduct rigorous research on the catchment area of the new location, shopping trends and the neighbourhood populace, etc. Retailers must investigate about the competitors in the area; the merchandise they offer. Also, they should analyse accessibility; relocate the retail business to sites where customers can easily travel by automobile, public transportation and on foot. Parking area should be adequate.

 

Cost involved in making unviable to viable

On being asked about the cost involved in relocating a store, though Mr Kapila declined to comment citing it to be a confidential information, but revealed, “For relocating  retail outlets, lease agreements are the most common ways and we do rental sharing as well, as a fall-out of recession.” As per him, over the last one year the retail has closed about 150 unviable stores and reduced the losses per month by about Rs 10 crore. The strategy that Spencer’s Retail Ltd adopted helped it to minimise the relocation/ closure costs. Mr Kapila states, “All perishable merchandise is attempted to be sold, non-perishable ones are transferred to another nearby store or store in the same city. Employees are transferred to other operational stores. In-store fixtures are also recycled whenever a new store is opened or an existing one increased in terms of space.” Mr Varghese seconds him saying, “More than directly affecting the profit, relocation reduces losses operating an unviable location.  We have a process by which we move the inventory from the closed location to other nearby stores.  We also reuse the fixtures and fittings for new stores being opened in the same area.”

 

Retaining the brand identity

In due course of relocating your retail store, it is important to note that your brand identity should remain intact. Too many changes may not be accepted by a certain group of customers. They may find it difficult to relate the change with the brand they used to shop from earlier. To avoid this, keep the visual merchandising of the new store similar to the earlier store. However, you can add some innovative visual merchandising once the new store finds acceptance among its target customers.

Though some retail relocation practices have been disastrous but there is a brighter side to the concept too. All depends on the execution of the strategy, which actually makes the difference!

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