Retail insights: why store-level efficiencies matter in 2023 and beyond
This preview blog is an excerpt from our research report: Red Dawn at Morning: An Update on the Retail Opportunity. For more insights on retail trends, download the complete study HERE.
MerchLogix commissioned DM Buck Advisory in 2021 to provide a quantified analysis of top retailer sales in both the store and online channels, using public filings, press releases, conference calls, a consumer survey, and third-party databases. In short, we essentially checked the pulse of U.S. retailers, and the resulting report: “Retailers and Shoppers Turn Attention (and Investments) to Stores: A Financial Analysis” attempted to answer the following question.
Does it make sense for retailers to further invest in store openings in the age of online penetration?
We asked the question because retailers suffered from share loss to growing e-commerce players, a trend that was accelerating due to the impact of COVID. Retailer stock prices had languished in the preceding years as a result.
Our key conclusions from the 2021 report were:
- Despite notable challenges, many retailers are in better financial health than many suppose (i.e., positive same-store sales gains, square footage growth in the years before the pandemic, and higher year-to-year EBIT profit margins).
- Customers (of all ages) regard store visits as an integral part of their shopping solution (our proprietary DM Buck Survey results show consumers would prefer shopping in stores by a margin of almost 3 to 1 (young people were even more decisively positive toward stores).
- Retail success going forward will depend on the right positioning (category, convenience, proprietary leverage, in-store consultancy, intelligent use of square footage) and a relentless focus on cost efficiency. Retail is a low-margin business, so even modest improvements in the efficiency of store labor (~ 50% of the operating cost structure) and inventory turns (cost of sales are typically >60% of revenue) would have an outsized impact on a retailer’s profits.
We sought to update a few key metrics since the 2021 report in this addendum report. Have retailers continued to invest in growing their store bases? Has retail profitability changed materially? What about prevailing stock market sentiment towards the sector?
To access our latest findings, download the full report: “Red Dawn at Morning: An Update on the Retail Opportunity.”