Retailers are holding themselves back, and in a turbulent competitive environment the consequences could be dire.A recent report from Deloitte partners Ian Geddes and Richard Owen describes how the “barnacle effect” is preventing some retailers from getting things right.
From the report:
“Retailers are clearly feeling the pressure and while the root causes for failure and distress are likely to be different in each case, a common contributing factor appears to be the fact that many established high street store portfolio are simply too large.
This may be a consequence of inefficient expansion driven by an historic pursuit of the top line, focusing on high sales volumes rather than the quality of income generated.
The old adage “turnover is vanity and profit is sanity” is returning to haunt many retailers as the downturn tightens its grip and online and e-commerce exposes margins to extreme competitive pressure.
Coupled with this, is a “barnacle effect” — a tendency for management to form an attachment to absolute shop numbers, causing them to cling on to retail units which should, based on the performance and contribution, be released at the first opportunity.”
Still, the report acknowledges that brick-and-mortar stores as a whole are nowhere close to dying, but lots of retailers do need to find a way to reduce their store footprints.
It’s a “constant and critical process of evolution” for retailers who want to survive, or even thrive, the report concludes.
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