According to PWC, 616 retail stores closed in 2018 whilst only 347 new stores opened. A good number of departmental stores including House of Fraser, New Look and Mothercare have fought uphill battles for survival as Delloite shows that the overall number of retailers that restructured through Company Voluntary Arrangements (CVAs) in 2018 rose by 53%.
Zelf Hussain, retail restructuring partner at PWC, said: “We believe CVAs are not the answer in isolation. Companies need solutions that fully address customer needs, represent sustainable cost savings and, if needed new money investment to bridge the lag between the cost of a restructuring and long-term performance improvements.”
These closures were mostly due to these companies’ inability to meet their long-term lease obligations that is customary within the retail sector with landlords expecting up to 20 year leases in some cases. This initially seemed like a good idea as retailers were able to predict and control their rent expenses over a long period of time. However, times have changed and the competitive landscape is much more stiffer. Retailers now often need to run experiments and test their markets and products before making any long-term commitments.
Warby Parker has become the poster child for successful pop-up road shows and retail experimentation as the founders launched their eye wear brand by validating cross-city demand using a refurbished vintage school bus covering 9 cities over a 6-month period. This unlikely “class trip” became the launchpad for Warby Parker’s success as an e-commerce company and its recent valuation of over $1 billion is proof that e-commerce sometimes needs physical stores to augment their efforts and propel them into longstanding success.