New Look’s recently announced store closures are not explained uniquely by the growth of eCommerce. In the year leading up to March 2018, the company’s total sales — including online sales — both declined, which is worrying because, typically, we would expect that eCommerce would continue to grow as store sales decline with footfall. New Look acknowledges that it chased topline sales with the aim of driving increased volumes and competing with the pure-play e-tailers and accepts that, moving forward, it needs to drive more profitable sales.
If New Look starts to grow eCommerce sales at three to four times its overall retail sales, we would expect that, over the next five years, one-third of its sales would be online, and store rationalization would be required to optimize online and offline margins. Today’s announcement to close potentially 100 of its 593 UK stores could impact pro rata an estimated 17% of its retail sales.
New Look is not the only retailer that is looking to close stores. Many UK retailers are doing the same as New Look to cut costs and improve profitability. Next, for example, has also recently announced that it is closing profitable stores to avoid making a long-term commitment to stores that have lower levels of profitability.
The retailers’ offline and online worlds must blend if they are to survive. Although, in the foreseeable future, stores will remain central to the purchase journey, retailers need to rationalize their store portfolio while understanding their contribution to both physical-store and eCommerce sales growth.
There’s much more from us on retail trends: Check out our 2019 predictions for retail, and see my colleague George Lawrie’s take on the New Look CVA. We’d like to hear from you: What do you think about New Look’s news and store strategy decisions?