Time to Restructure or Rethink?
Top 5 ways retail restructuring can change the landscape
As the retail industry undergoes a major transition, retail investors and landlords are faced with tough decisions. Now is a great time to restructure or rethink your retail strategy.
What many fail realize is that the most important work comes long before a company is in a dire situation. Smart companies know that taking an active role in optimizing low-performing stores and opening new channels of business should always be a part of the plan to keep a brand healthy and sustainable. It often prevents the need for more serious restructuring down the road.
So, is it time to rethink your retail strategies? Here are five ways retail restructuring can change the landscape of your business for the better
1. Optimize footprint – downsize physical brick and mortar space
Optimizing the size of your brick and mortar space could be an easy win for retailers.Not only will a retailer pay less rent on a smaller space, but they will still reap the benefits of a storefront presence. Having a brick and mortar presence is important because consumers still expect some degree of experience that in-store shopping provides. Especially since customer experience will overtake price and product as the key brand differentiator within the next year.
When it makes sense to downsize, we often help clients initiate a conversation with landlords about reducing their square footage. Sometimes this is a more desirable restructure than a traditional rent reduction. These discussions are becoming more and more common, and in some cases, are even being initiated by landlords.
2. Store within a store
Another way to reduce your footprint is to partner with another store for a mutually-beneficial customer experience. You may recognize this concept in some of your local department stores. Brands with smaller footprint needs are joining forces with larger stores to create a store-within-a store concept.
For example, Sunglass Hut setting up shop inside Macy’s is a strategic move. Both retailers benefit from the traffic the other brings to the space, and Sunglass Hut can take advantage of a negotiated lease.
There is also a powerful proposition for co-branding with a right retail partner and combining forces when both retailers are targeting the same consumer. Examples of this are Sephora within JCPenney and Starbucks partnering with grocery store and book store chains.
We have also seen similar a movement with stores doing small pop-ups. This is particularly the case with event-driven pop-ups, holiday gift pop-ups and pop-up restaurants in big cities.
3. Consolidating the number of locations in a market
If you’re a company with multiple locations, you should always have an eye on your bottom 10 percent performers, analyzing what those bottom-rung stores need to contribute to profitability. The low performers that can’t be saved need to be culled so that business can flourish in the long run. It may make sense to free up the capital from low-performing stores and reinvest it in your brand, through remodels, targeted marketing and ecommerce transformation efforts.
In this age of retail reinvention, retailers are opting to enhance the store experience with new technological bells and whistles – and are defying the expectation that legacy stores are all contracting.
But not all store closings are created equal. Sometimes a broad stroke of closings is not necessary when occupancy cost adjustments could be made. Dependent on the lease, a landlord might be willing to give a lease extension ahead of an expiration in exchange for a rent reduction.
4. Remodeling and upgrading existing space
Enhancing store experience is a great way to upgrade your existing in-store experience. But there are several other ways to add the ‘wow-factor’ to your space that can help reposition your brand for success. Just take it from these clients, who revamped their brand by partnering with Big Red Rooster, a JLL Company.
Certain types of exterior and interior remodeling options not only increase traffic and revenue for stable retail sites, but also can keep distressed brick-and-mortar stores afloat. Successful property modifications include creating new logos, refreshing exteriors, and updating signage and other outside imagery.
As a building owner, the landlord directly benefits from a renovation of its physical asset. If the owner needs to refinance debt, property renovation will improve the lender’s loan-to-value ratio, increasing underwriting support. When a space turns over from one tenant to the next, an improved exterior condition lowers the landlord’s tenant improvements costs.
The exterior of the store is the best billboard you could possibly have. The changes that are made from the exterior are usually an upgrade in signage or awnings; or anything that’s concept-specific: maybe a new logo or new colors. On the interior, making changes the consumer can relate to are key. Whether it’s improved store flow, enhanced customer service or making things more accessible, these tweaks will draw the shopper’s attention.
5. Asset optimization
Once a portfolio review is conducted to determine underperforming locations, developing a store closing plan is a critical strategy. In many cases, particularly natural lease expirations, a retailer can save on occupancy and other store operation costs simply by closing.
Rather than incurring the expense of shipping store goods out of the closing store, a retailer can optimize the value of the inventory via a strategic store closing event managed by professional services firms such as Gordon Brothers. These firms work directly with a retailer’s corporate teams to operate all aspects of the sale including customer messaging, discounting, merchandising and store clean-outs. They also facilitate the sale of the furniture, fixtures and equipment if needed.
Further, Gordon Brothers creates custom customer transition and retention programs that incentivize customers to continue to shop the brands’ nearby locations or ecommerce platform. Transferring customers, and therefore sales, is the most overlooked aspect of asset optimization via store closings. The lift to adjacent stores and/or ecommerce can be significant to the bottom line if done effectively.
JLL and Gordon Brothers formed a strategic alliance to provide the industry’s most comprehensive retail real estate and restructuring service offerings. For more information on our wholistic approach to restructuring click here.
JLL helps healthy, stressed and distressed customers alike terminate leases, downsize their footprints, or otherwise restructure their real estate to position themselves for success. Whether it’s reducing occupancy costs through rent reduction or embarking on a brand refresh, at the end of the day, restructuring is a mindset of continuous improvement, and not just for financially troubled companies. The progressive companies know that it is always time to monitor their occupancy costs —and if they forget, we remind them.
Bridget Grams is an Executive Vice President who has restructured more than 1000 commercial real estate sites. She can be reached at Bridget.Grams@am.jll.com.