The quarterly slide presentation typically starts with a map with overambitious dots that mark the locations of new conquests or stores that have been opened successfully. We discuss going to five hundred places throughout the nation, or getting a presence in a century cities, as though the door opening is the best finish line. These reports boast of market reach and geographic footprint since they can be readily quantified and appear to be magnificent on a board meeting table. A particular professional satisfaction comes with the increasing store count growing, but the truth about this story of aggressive growth is that presence is nothing more than a judgement of potential rather than an indication of performance.
Reporting looks to highlight penetrate measures since they give a sense of magnitude and pace that stakeholders are more relaxed to. We think that an increase in stores will translate to greater visibility and more money, but the fact is that with each new store, a new level of complexity is added which can silently diminish the health of the whole network. Penetration opens the possibility of a customer to engage with your brand, however, the store-level reality is what decides to deliver the opportunity as a drive towards a transaction or as a failure.
The Man Behind the Map
Retail expansion has been a majority of the time an issue whereby leadership teams have thought the logic of expansion is linear in that doubling the number of stores will also directly translate to doubling the impact. This supposition does not consider the concealed friction scale together with the footprint. When the brand may have reached a big milestone, the stores themselves are either hit by stock outs, bad merchandising or a haphazard layout so different in each city.
The facts imply a cruel truth that seldom finds its way into the polished expansion narrative. Experiencing poor performance may result in a thirty percent decline in sales at the same store, that is, the same network can get radically different results, and dependent on the effectiveness of its day-to-day performance. It may tell you that you have a presence in a prime mall, but when the execution by the staff is low as well as the shelves being not well arranged then that presence is used up against the brand.
When Performance is Diluted with Footprint?
The network needs a critical mass at which the entire network starts to push the current systems past their limits. The implementation process creates the gaps in execution multiplies as the rollout progresses and the supply chain becomes stretched to its limits so that it can no longer provide consistency across the map. The farther apart the headquarters and the store floor the more control is lost, and all of a sudden the costs of having a large network started to exceed the returns.
Such performance difference is rather evident when we compare the results of high-performers with the underachievers in the same network. The disparity is almost never in the place alone; it is the incongruency in performing that is enabling one manager to succeed and another to fail. It is true that expansion in footprint may cause decline in overall performance in the event the expansion is not matched by investment in systems to run the expansion. That is why, there are retailers who end up having a greater number of stores, yet profitability who are stuck in a downward loop of scaling their troubles and not their achievements.
The Weakness of Worldly Desire
The exposure to threats of prioritizing penetration, rather than performance, is even greater as it enters new geographies. Expansion into the global retailing presents complexity in regulation and a culture that may confuse a team that has been used to a domestic market. To consider how failure in penetrating may still result in full failure, one can refer to the case of the failure of Target in Canada. They grew tremendously, already having more than a hundred stores, but the failure in production in their inventory and supply system was so numerous that the whole project collapsed.
Compare this to such a brand as Zara, which is still able to perform well despite all its gigantic globality. They approach the penetration in a systemic approach but not as a vanity measure. They are attentive to an integrated supply chain and real-time responsiveness that all the stores in their network operate at high level of execution discipline. They know that size is not working but only simulation that ultimately vanishes as soon as the market becomes tight.
Getting the Most Out of the Store Floor
The future of the retail expansion needs conversion of the maximization of presence to maximization of performance. This implies that the focus is to shift to an execution-led expansion strategy with store productivity as its key measure of success. It will probably become more of a trend towards fewer, higher quality stores that use data driven decision making to make sure that all locations are doing their part. The actual ROI of a store rollout cannot be unlocked upon signing the lease, but when the store floor is delivering the brand promise all the time.
The most successful brands are starting to appreciate that everywhereness is not as important as everywhere you want to be doing. On paper, it may appear that your retail penetration is good when it is presented, but your customers are not feeling your penetration. They feel your execution as they pass through your door every time and that is where the true tale of your brand is narrated.
When your expansion accounts are performing very well, and you feel that your performance at the store level is not responding consistently, it might be time to reassess the systems that unify performance between strategy and floor levels. We need to discuss the way of transforming your presence in the market to the tangible performance.
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