How retailers can
around in 2021
Opportunities abound from changing the size of spaces to renegotiating leases
As the retail industry navigates unprecedented change, retailers are faced with tough decisions. But these challenges can be paired with opportunities to proactively optimize your real estate portfolio and navigate financial flexibility, preventing the need for more serious restructuring down the road.
From forming mutually beneficial agreements with landlords to partnering with other brands, there are many creative ways to free up the cash you need to invest in your future.
Here are four ways you can get ahead of the game, take control and improve profitability and cash flow in 2021 with a restructuring strategy.
1. Rightsize your space
Having a brick-and-mortar presence is imperative because in-store customer experiences tend to overtake price and product as the key brand differentiator.
But analyzing how much space is actually needed and rightsizing your footprint can lead to easy savings. With a smaller space, you can pay less rent and still reap the benefits of a storefront presence. When it makes sense to downsize, JLL can help you initiate a conversation with your landlord to reduce your square footage. These discussions are becoming more and more common, and in some cases, are even being initiated by landlords.
2. Partner with other brands
Another way to reduce your footprint is to partner with another store for a mutually beneficial customer experience. This allows the brand with a smaller footprint to find a home within a larger store. These partnerships offer multi-touch shopping experiences that allows the consumer to cut down on multiple stops.
For example, Target has plans to partner with Ulta Beauty to create “beauty shop within a shop” concepts at more than 100 locations.
3. Optimize your portfolio
For many retailers, 20% of stores account for more than 50% of profit. These locations are typically safe from competitive intrusion and provide leverage within your portfolio. But, what about the other 80%?
Once you’ve completed a portfolio review to determine high performing and underperforming locations and fair market occupancy costs in today’s environment, developing a store closing plan is a critical strategy. In many cases, you can save on occupancy and other store operation costs simply by closing and there is often opportunity to align with natural lease expirations once you’ve assessed the full picture.
Rather than incurring the expense of shipping inventory out of the closing store, you can optimize value via a strategic store closing event managed by a professional services firm such as JLL. We work directly with your corporate teams to operate all aspects of the sale — including customer messaging, discounting, merchandising and store clean-outs. We also facilitate the sale of the furniture, fixtures and equipment if needed. We can also implement integrated marketing programs that transition customers from your closing stores to your more productive channels (e.g., adjacent stores or online).
4. Leverage your lease
High-performing stores are perfect candidates for lease negotiations. Often, you can successfully ask landlords for rent reductions in exchange for longer lease terms that benefit both parties in an economic downturn.
Such agreements are a win-win. Cheaper rents allow you to increase your profit margins, while longer lease terms are attractive to landlords because banks favor them, which matters when it comes time to refinance or sell a property.
The bottom line
During times of economic instability, businesses are often on the defense, reacting to challenges with quick decisions. Now, you have an opportunity to be on the offense of financial flexibility. The decisions you make today—whether it’s reducing occupancy costs through rent reduction or closing underperforming locations—will position you for success while navigating a still-evolving path in our COVID impacted world.