How do you spend your limited money? It’s an eternal question for most executives when considering where to spend capital to drive the business forward.
Our research shows that – at least for most retailers – the simple act of continuously increasing investments is actually the most important path to driving your growth. In general, the more you invest as a retailer, the greater your shareholder returns over a longer time horizon.
With that in mind, ask yourself: where is the natural starting point, as a retailer, to make long-term investments?
The answer is simple: Stores.
Do you underestimate your investment returns?
We can speculate as to why most investments for larger retailers bear fruit. Perhaps it’s because your company has investment committees to review business cases; therefore, the investment outcomes will yield positive results simply because they have undergone a thorough review process.
Alternatively, perhaps it’s just that many of us underestimate the ROI or can’t measure on the front-end some of the positive qualitative impacts that may occur because of these investments over the long run. From our research and work with clients, these two assumptions keep bubbling up and are worth noting.
With this information in mind, stores are a natural place to start when thinking about long-term investments since we know they offer benefits that are not fully quantifiable and are a key pillar for faster delivery speeds to customers.
Consider unforeseen benefits and intangible upside when looking at investing in your stores
Some estimates show that store remodels generated a 5-10% sales lift in the “four walls” of the store. The research from our work indicates a more conservative estimate of 4-8%, with many factors in play, including store design, post-remodel visual merchandising, customers in the catchment area and whether the store is mall-based, along with a multitude of other factors.
While investments in stores are critical to modernize a fleet and meet your customers’ changing expectations, stores have taken on a new significance and role over the last several years for retailers: fulfillment nodes for ecommerce orders.
Shifting ecommerce fulfillment to stores generates an additional benefit that is hard to quantify in your front-end analysis beyond the traditional “four walls” sales lift. [NOTE: this benefit is excluded from our quoted 4-8% sales lift we have seen because it is hard to measure with confidence. Analysis, though, confirms increased digital sales in areas where a retailer has physical stores.]
Adding ecommerce fulfillment to stores brings new customers into the fold – or increases trip frequency of current customers – through new service options, like Buy Online Pickup In-Store (BOPIS) or Curbside Pickup.
Customer expectations have shifted towards these faster service options, and fulfillment, through stores, has become the most reliable way for retailers to deliver on same-day service expectations. Target – a leader in same-day delivery – now runs 75% of its online orders through its stores.
In fact, some retailers have found such tremendous success using stores to fulfill ecommerce orders that they have started bolting on microfulfillment centers (MFCs) to their sites show or building dedicated dark stores with semi-automated technology to increase their capacity for online orders. Typically, these investments make sense when retailers are processing 300-500 orders per day through a given store (or through multiple stores in close proximity).
A great ecommerce service experience is just as powerful as your brand’s in-store counterpart
Stores, as both physical shopping spaces and fulfillment nodes, add a much larger benefit to your store remodel when you consider the investment returns from both the “four walls” sales lift and optimized ecommerce service speed in relation to the brand benefit.
In an omnichannel world, ship speeds and convenience have a material impact on the brand perception for customers which, in turn, affects their shopping habits. This becomes the core challenge during the investment process: measuring the precise ROI of a remodel given the second- and third-order benefits when investing across many locations.
We’re all customers, so instinctively we know the power of a great shopping experience with a brand and how that affects future purchase decisions. The feeling a customer gets when experiencing a seamless online order – and how that affects future purchase decisions – is just as important as a great in-person shopping experience these days.
With ecommerce sales comprising, on average, 20% of all retail sales and, in some cases, close to 50% for some retailers, ecommerce service is a core part of the shopping experience for customers.
As ecommerce increases, your investments in stores will generate increased returns
Of course, the benefits of investing in stores to drive an omnichannel model are difficult, if not impossible, to measure with precision but are central to the value of any store remodel. Since research shows that a store presence boosts digital sales in the surrounding area, it should come as no surprise that remodeling a store – with an omnichannel model in mind – has a bigger impact than just the “four walls” sales lift.
As ecommerce continues to grow as a meaningful percentage of a retailer’s sales while, concurrently, customers demand faster delivery speeds, the value of store remodels will only increase.
Where have you seen the greatest challenge to making omnichannel investments in your stores or moving to faster shipping speeds for customers?
