Bailing Doesn’t Fix The Hole

The parade of bankruptcies that is being unleashed-or more accurately, accelerated -by the COVID-19 pandemic will result in vast numbers of store closings, layoffs and other major expense reductions as long-struggling retailers attempt to stave off liquidation. Some two months of largely shut-down brick & mortar operations has created an existential crisis for brands with weak balance sheets. Yet as we transition to a highly uncertain and volatile future, we should remember that the retailers than find themselves in massive trouble didn’t get there because they have a too many stores problem. They got there because they have a customer relevancy problem.

Let’s look at the three fundamental reasons driving declining store traffic prior to the Coronavirus outbreak. The shift to online shopping gets the most attention, and a typical retailer can’t do much to stem the tide of this fundamental trend in customer behavior. Here the focus must be to capture as much overall market share as possible through a strong digital and e-commerce presence, in concert with leveraging the unique benefits of brick-and-mortar whenever possible.

The second reason has almost nothing to do with the growth of online sales, but rather broader sectors shifts across retail. As we have seen, the dramatic growth of off-price retail (such as TJ Maxx, Ross, and Marshalls), which is almost entirely transacted in physical stores, has siphoned off considerable traffic from moderate department stores and certain apparel and home specialty stores. Dollar stores, warehouse clubs, and value grocery stores like Aldi and Lidl have stolen trips from traditional grocers. While not as impactful, various fast-growing, largely brick-and-mortar-dominant concepts, from Lululemon to Five Below to various fast-fashion players, are all claiming their piece of the traffic pie.

The third driver has everything to do with whether a retailer has a highly customer-relevant and truly remarkable value proposition and executes it well-which lies at the heart of my new book’s premise. This does not mean ignoring the fact that many retailers have operating cost issues and/or too many stores. But if the fundamental reason a given brand’s stores are leaking traffic is that the underlying customer-value proposition is irrelevant or decidedly mediocre, it’s hard to see how cutting costs and closing stores will be the solution.

We need to fix the hole.

This post is adapted from Remarkable Retail: How to Win & Keep Customers in the Age of Digital Disruption, which was Amazon’s #1 new retail release for the month of April.

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