Introduction

The retail landscape has been undergoing a significant transformation,but this is not just a story of store closures, declining traffic and falling sales; it is also one of renewal. Physical stores have had to reinvent themselves in order to stay relevant and in re-imagining the store experience, retailers today look increasingly prepared to invest in upgrading and revamping their stores.

Store Investment Details of Six Prominent Retailers

To illustrate how retailers have realized the importance of investing in stores, we detail below the investments, and investment plans, of six prominent retailers.

• Tiffany and Co., the American jewelry retailer, announced in August this year that it will spend at least $250 million to renovate its flagship store on Fifth Avenue, New York City. The project—which aims to create “a dramatic new experience” for customers—is expected to run from February 2019 till late 2021 with the company’s capital expenditure going up 1%–2% each year during this period.This renovation project follows the partial renovation that Tiffany carried out in in 2017 to accommodate“The Blue Box Cafe” on the fourth floor of the same store.
• Walmart, the world’s largest retailer, announced in April this year that it will remodel 500stores and open 20 new ones as part of an $11 billion investment in over two dozen US states. Florida and Texas will get the lion’s share of the investment with the company allotting a combined $477 million to remodel 82 stores and open 14 new ones in the two states. The remodeled Walmart stores will have wider aisles, shorter shelves, new signs and flooring, redesigned electronics departments with interactive displays, updated pharmacy areas with new private consultation rooms and additional self-checkouts, along with other enhancements to the cosmetics, home, hardware, auto, baby and produce departments.Walmart unveiled its newly remodeled store in Charlotte earlier this month.
• Target, the second-largest mass merchandiser in the US, announced in March that it will invest $250 million this year to revamp 28 stores in the twin cities of Minneapolis and Saint Paul. This will be the retailer’s biggest investment in any single region this year and is in line with its plans to invest over $1 billion to refurbish around 325 stores across the US.This investment follows the company’s $220 million investment in 2017 to remodel 28 Target stores in North Texas.
• Publix Supermarkets, the Florida-based supermarket chain, has earmarked $1.5 billion to remodel existing stores, open new ones, upgrade technology and acquire shopping centers, in 2018.
• In February 2017, German grocery retailer Aldi announced a plan to invest $1.6 billion to remodel over 1,300 US stores by 2020 with the objective of enhancing the customer shopping experience.
• John Lewis, the UK-based department store chain, will overhaul 15 stores and turn them into “pilot shops.” The project, which started in September, aims to stem falling sales and profit, and the pilot shops will feature events, classes, personal stylists and front-of-house concierge services.

John Lewis also has a multi-million-pound refurbishment plan for its flagship store on Oxford Street, London. At this store, the company plans to open a rooftop bar and pop-up cinema, along with revamping its womenswear floor and opening a new shoe-room in association with British footwear retailer Kurt Geiger. John Lewis is also considering introducing a rooftop bar and pop-up cinema space at its store in Southampton,which will be one of its 15 pilot shops.

Will These Investments Pay Off?

While it is necessary for retailers to invest in their digital capabilities to adopt a multi-channel approach to sales, we are also seeing increasing investments to enhance existing physical stores. A recent experience of Target suggests that investment in stores can yield meaningful top-line benefits.  In 2017, the retailer invested $7 billion in a plan that included revamping 600 of its stores at a time when many of its peers were closing their existing ones. This was a move that Wall Street was highly skeptical about given the prevailing retail environment, and Target’s shares had dipped by over 12% in the immediate aftermath of the announcement. However, Target went on to record 3.7% growth in traffic in the first quarter of 2018 which was its strongest quarterly performance in over a decade. The company’s comparable sales rose by 3% in the same quarter, as against a 1.3% decline in the first quarter of 2017.In the second quarter, the company’s traffic growth rate soared to 6.4% which was the strongest since the retailer began reporting traffic in 2008.Comparable sales grew by 6.5% as against 1.3% in the same period in 2017. Sales at Target stores contributed 1.9 and 4.9 percentage points to the company's same-store sales growth in the first and second quarters of 2018, respectively, thus becoming theprincipal driver of the company's growth. These data show that the company’s investment in store remodeling is paying off. Such investments may, however, notwork for every retailer. There are various variables that need to be considered when investing in stores, such as which stores to remodel, what designs to adopt and the volume of the investment.After deciding to invest, retailers will also need to get the execution and operations right so as to give themselves the best chance for success.

What We Think

Brick-and-mortar retailers need to give consumers a reason to visit stores instead of making online purchases, and, to that end, an increasing number of companies have started investing in stores. We expect an increase in retailers’ capital expenditure to remodel stores as the competition to attract store traffic intensifies against the backdrop of increasing penetration of e-commerce. Even as some retailers are closing stores, they can be investing in their remaining portfolio under a “fewer, better” strategy. While stores try to transform themselves into “stores of the future,”they will need to get their research, planning and strategy right in order to draw shopper traffic and deliver superior customer experiences.