Consumer and Retail
Lean ‘brick-and-mortar’ retail: Quest for profitability
31 Aug 2017
There has been a lot of talk on how Ecommerce is redefining Retail. Interestingly, there is a slow but significant shift in Brick and Mortar retail gaining ground.
Lean Retail Store. A concept somewhere between ‘hole in a wall’, ‘kiosk’ and ‘typical brand store’ which has been quite common in categories like on-the-go juice shops or ice cream parlors. Think of it as a ‘Shop-in-shop’ but not really in another shop but in the mall itself. Some mono-line brands like Tie Rack used to have such Lean stores in malls and airports in the UK. We are seeing such format of stores being rolled out more and more in several new categories by several brands like Crocs, and Go Colors.
Even other service outlets like bank branches e.g. Digital self-serve in-Touch branches of State Bank of India, or even, recent news on McDonald’s outlets being ‘manned’ by computers is a shift in the same direction, i.e. deliver the functionality of the full retail outlet but without the overheads of the traditional retail model.
We are seeing some examples of these already with stores from Chumbak, PrettySecrets and Happily Unmarried. We believe that conventional retail players should re-think about re-orienting their store formats for superior customer experience, enabling wider presence and much better operational efficiency. Instead of having a 1,200-1,800 sq.ft. store, trying a 450-600 sq.ft. store with 90%+ functionality could help expand the network profitably.
"This new format could be an interesting part of the omnichannel play for online-first brands. At the same time, conventional brands can build competitiveness by re-aligning their network to include this format. Moreover, this format could help conventional brands expand their network beyond the top 20-30 cities as this store format is more viable."
This format is characterized by five dominant features:
- Greater sales per square foot (spsf) through efficient use of wall space (vertical crowding instead of shelf crowding)
- Interiors behave like exteriors (very limited window area) creating a direct pull for relevant consumers
- Open browsing format with ‘most logical’ merchandising that saves open walking area
- More focus on the display of a variety of merchandise (while stocking sizes, shapes and colors behind the store)
- More rationalized store staffing (coupled with innovative use of technology e.g. sensors, cameras, lean billing terminals, etc.)
It is worth noting that this format won’t work in all cases. E.g. brand flagship stores or categories with high volume and size variability in each SKU would find it difficult to go this route. Nevertheless, we believe that this makes conventional retail more efficient.
"Combining store formats like these with technology (‘Place an Order’ for your size, or browse/virtual trials on screens like the ones used by Uniqlo and Neiman Marcus) could spur the next revolution in retail bringing online retail and brick-and-mortar retail closer to parity."
Thoughts on how this would evolve are welcome!
Authored by (at the time of writing):
Madhur Singhal, Leader, Consumer and Retail Practice
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