It didn’t come as a total shock to anyone (even its customers) that Starbucks announced they were closing over 600 stores in the United States (of 11,000). This may seem like a lot of stores to write off and a lot of people to lay off, but in the scheme of things, less than 6 percent of their portfolio is not that significant. However, symbolically, it is huge.
What this really means is that the strategy of putting a Starbucks on every street corner has not worked over the long term and that like anything else, too much of a good thing is, well, too much.
Starbucks is not the only culprit who headed down this strategic path. Gap Inc.’s Gap Brand also committed way too many stores and in sizes too large to be able to sustain a healthy dose of productivity. Whether it was in Manhattan where you see their blue box signs on virtually every other street corner or in every mall in addition to street locations nearby. Not to mention the fact that it seemed that every location Gap had opened a store, the very same parent company would open an Old Navy store, which sold product very similar to that of Gap’s at 30 percent less. This has created about half the problems the company is still enduring. Their new CEO Glenn Murphy has already stated that they will close stores and downsize their portfolio.
It is a delicate balance between replicating your offerings in as many places as possible to leverage your infrastructure and maximize a brand’s potential and profits, and reaching some sort of diminishing returns over the long run as one location cannibalizes another and productivities start to wane and the leverage starts to roll backwards.
My preferred approach is that taken by Urban Outfitters. Their deliberate, measured approach to expansion, more fueled by the development of different concepts than by an over saturation of any one concept including their namesake brand and ever-popular Anthropologie. Although Wall Street may not have been their biggest fan because of their somewhat cautious approach, it ensures that their productivities remain high, their concepts remain destination oriented and their offerings remain special.
My sense is that with the slowdown in retail spending that is currently taking place, those that remain selective in their expansion plans will emerge more successful and better able to ride out the storm as they will have fewer weaker store performers.
It is also about time that specialty retailers take cues from their more sophisticated larger box cousins, who have spent an inordinate amount of time and resources to analyze and develop a sensible and practical long term real estate strategy. It is not only about replication, it is also about avoiding the traps of over-expansion and misplaced ego.
The more special you are, the more shock-proof you become in any kind of environment.