Robert grossman, Repositioning and Restructuring Retail

1. Repositioning and
Restructuring Retail
The Evolution of the Store and its
Impact on Real Estate Strategies
May 9, 2012
Rob Grossman, Principal
Deloitte Consulting LLP

2. “If everyone does their shopping online, the malls will close
and we won’t have anywhere to hang out.”

3. The Retail Industry is Feeling
Pressure from Every Direction
Consumer Behaviors Stagnant
& Lifestyle Macroeconomic
Environment
Heightened Consumer Technology,
Competition & Price Transparency,
Lowered Barriers & Secure
to Entry 24/7 Access

4. Online Sales Growth Continues to
Outpace Traditional Growth
YoY Quarterly Growth: Ecommerce vs. Traditional Retail
30%
25%
20%
15%
10%
5% Ecommerce
0% Brick and Mortar
‐5%
‐10%
‐15%
Q1 2005
Q3 2005
Q1 2006
Q3 2006
Q1 2007
Q3 2007
Q1 2008
Q3 2008
Q1 2009
Q3 2009
Q1 2010
Q3 2010
Q1 2011
Q3 2011
Source: U.S. Census (Quarterly Ecommerce reports, Monthly Retail Trade reports)

5. During Cyber Week, 2011:
I shopped online
instead of in stores
because there were 72%
better deals online
I shopped in stores
less because I
shopped online 59%
instead
Bizrate Insights/Forrester Holiday Shopping Flash Surveys, Q4 2011 (Forrester Research, Inc.)

6. Ecommerce Sales are Reshaping
Brick‐and‐Mortar Economics
$3,800
$3,600
$3,400
By 2015, it is
estimated that
Sales, Millions
$3,200
$175 billion
$3,000
will shift
$2,800 out of stores
$2,600 to online
$2,400
Ecommerce – Incremental
Ecommerce – Shifted out of Stores
Traditional Retail Sales
Source: Multichannel Forecast for the US and the UK. Gartner Oct. 2011 (US sales numbers only), Deloitte Analysis

7. Translating Sales Into Square Footage
 Consider revenue numbers and growth rates for traditional
and ecommerce
 Determine physical footprint and Sales/Square Foot metrics
 Forecast growth of all channels based on projected trends
and current performance
 Estimate the sales ‘shift’ from the store to online, and
translate into square footage

8. Some Retailers Have Already Begun
Reacting to the Shift
% Change in Average Physical Store Square Footage 2002 ‐ 2011
5%
0%
% Change (Year‐over‐Year)
Kohl’s
‐5% Home Depot
‐10%
Best Buy
‐15%
J.Crew
Nieman Marcus
‐20%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Source: Company 10k reports (U.S. Stores only)

9. Lower In‐Store Sales Warrant a
Reduction in Square Footage
Excess square footage by 2015,
Department Stores 5‐25%
Excess square footage by 2015,
Specialty Retail 10‐45%
Variation in range depends on retailer’s
multichannel maturity
Source: Company 10k reports, InternetRetailer.com, Deloitte analysis

10. Smaller Stores, Fewer Stores, or Both?
The considerations are complex
The Competition
The Customer Advertising
Logistics Economics
Each retailer must weigh its own situation and objectives

11. Implications for Retailers
Existing Stores: Reimagine and Repurpose
‐ “Show‐rooming” & showcasing
‐ New services & customized experience
‐ Stores‐within‐a‐store
Future Stores: Reduce and Reinvent
‐ Understand implications of ecommerce
sales on square footage
‐ Consider smaller stores, fewer stores
‐ Focus on the customer experience

12. “Show‐rooming” & Showcasing

13. New Services & Customized Experience
(Irfan Khan/Los Angeles Times/MCT)

14. Store within a Store

15. Summary
As retail sales continue to shift out of stores, retailers
will increasingly need to re‐evaluate their real estate
strategy:
• Recognize and repurpose surplus square
footage
• Evolve the physical store to deliver a superior
customer experience
• Reimagine new stores in terms of size and
density

16. For Additional Information
or to Discuss Further:
Deloitte Consulting LLP
1633 Broadway
New York, NY 10019
Rob Grossman Tel: +1 212 492 4219
rgrossman@deloitte.com

17. Q&A