Data about the 2013 holiday season from a wide variety of retailers is feeding a growing consensus: store traffic has decreased significantly across the industry and may never return to previous levels.1 We don’t disagree with these conclusions, but we’re not at all sure that they are new.
In fact, we launched a major transformation of Sears (SHLD, Financial) and Kmart years ago because we saw then that people had fundamentally and permanently changed how they shop as a result of the internet, social networking and mobile devices. Those changes have only intensified in recent years. That’s why we have been focusing so much of our collective efforts – and have invested such a high proportion of our company’s resources – into innovations like the Shop Your Way membership program and our buy online, pick up in store programs, which are the foundation of our Integrated Retail strategy.
When we were among the first to pioneer these ideas, many people outside of our company found them revolutionary. Many others questioned what we were doing. Today, changes like these are what people expect everywhere they shop.
The consensus about decreased store traffic also highlights another decision that has steered our work: we very often need less space to serve our members better and we may need fewer locations as well. This is true of our competitors too. In recent years, several chains have slowed once-robust expansion rates. Many, including Home Depot, Lowe’s, Kohl’s and Macy’s, have slowed their rate of capital expenditures on stores. Some, like Borders and Circuit City, invested heavily in stores but failed to fully focus on the growth of online sales and had to shut down entirely. And quite a few, including us, are now reducing their overall number of locations.
We don’t make decisions to close stores lightly, and we know just how hard these decisions are on our loyal associates who have provided years of excellent service. But we’ve also carefully studied where other retailers went wrong and how they failed to adapt to changes. We’re also not alone in making these changes: Macy’s, Target and J.C. Penney are among those trying to adjust their store bases to reflect changes occurring across the industry.
There’s obviously no single right size for any retailer. Other companies show that it is possible to serve the American public effectively and have a large and profitable business with a smaller store base. For instance, Sears and Kmart have about three times more locations than Sam’s Club and more than four times more stores than Costco. We have roughly twice the total square footage as J.C. Penney (JCP, Financial), but a bit less total space than Target (TGT, Financial).
Every company has to make their own decisions about how to invest and adjust for the future. But not everything that’s considered news today is new.
Years ago, Sears and Kmart began a major transformation in strategy and in capital expenditure decisions because we saw then what’s increasingly clear today. As difficult as these changes are, we believe the alternative of failing to plan for or even see where the retail industry is heading would be far, far worse.
