Store closures can mean good business

Store closures aren’t always the negative that they are reported, it’s just that with the global crisis at present, the public is hyper-sensitive to possible failures.

Some of Australia’s strongest retailers in the current climate are Harvey Norman, Woolworths, Wesfarmers, IGA and JB Hi-Fi. We see them tightening their belts yes, but only as part of carefully executed strategies that maintain a healthy business in tough times.

When Harvey Norman closed four stores this year, the general mood reported was failure. The reality is far from it. Gerry Harvey is doing what all good retailers do year after year. He’s keeping his business in order – and doing it well.

Likewise, when David Jones CEO Mark McInnes announced that he was trimming head office staff in January, it was a prudent move to lower fixed costs without affecting customer service, the crux of the customer offering for top-end department stores.

Closing a store, or announcing cost-cutting measures, is the way forward for retailers. We will see a slowing of store expansions, and we will see stores lost, but this is prudent planning to ensure business success and profitability. Smart reaction to unprofitability protects the future of well-run businesses.

And looking at the market as a whole, a store closure doesn’t always mean doom and gloom. We all care about unemployment figures and the reported “significant job losses” associated with store closures are often actually a far different reality.

In Australia and New Zealand the retail landscape is dominated – or protected – by “zoning laws”.

Retail zoning limits the number of sites available to open shops which means that it is difficult for retailers to expand quickly with new sites. So when a retailer or chain closes often stronger retailers, usually competitors, quickly move in and acquire the sites, rebrand and reopen their doors.

When EzyDVD closed doors, they were picked up by Franchise Entertainment Group, parent company to Blockbuster. So it might be that soon we see EzyDVD stores reopening or opening as Blockbuster stores.

Often staff are hired back. You could say it’s a redistribution of ownership rather than a store lost. The only real loser is the owner of the failed retail store or chain which will have been purchased by competition at a bargain-basement price.

Britain and Canada work with the same restrictive zoning laws as Australia, but the US operates with a critical difference.

In the US, zoning laws are much more lenient on retailers, to their benefit, but often to the detriment of retail store staff.

With little restriction on the number of retail stores available in any area, there is less reason for a competitor to buy out a failed store or chain when it closes. Why would it, when it previously had the opportunity to build right next door? The result of closures there is jobs lost and shopfronts demolished.

When consumer electronics retailer Circuit City closed over 500 stores just before Christmas, thousands of jobs were lost. Little incentive for competitors to buy them out meant real loss for staff, who had little hope of a buy-out that would lead to re-hire.

Let’s be pleased Australian retailers act strong and smart in the current market. A few stores lost is a very small price to pay for maintaining a healthy business. Added to which, the effect is not as bad as you first read about anyway. And we can thank zoning laws for that.

In his role as CEO of CROSSMARK, Kevin Moore looks at the world of retailing from grocery to pharmacy, bottle shops to car dealers, corner store to department stores. In this insightful blog, Kevin covers retail news, ideas, companies and emerging opportunities in Australia, NZ, the US and Europe. His international career in sales and marketing has seen him responsible for business in over 40 countries, which has earned him grey hair and a wealth of expertise in international retailers and brands. CROSSMARK Asia Pacific is Australasia’s largest provider of retail marketing services, consulting to and servicing some of Australasia’s biggest retailers and manufacturers.

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