The benefits of concessions in Retail: how best to make them work

Both traditional retailers and online specialists are converging on the middle ground, omnichannel, model. We explore what makes for a successful concession.

We are all familiar with the headlines – stores closing, businesses going bust as more and more consumers move online. However, we also know that blaming all this on an unstoppable march towards a totally digital retail landscape is an over simplification.

Both traditional retailers and online specialists are converging on the middle ground (omni channel) model, where there is a role for physical stores as well as digital channels. The type of portfolio required to meet this move will depend on the category. For example, in food, where most sales are still through stores, then a network of supermarkets of varying size will still be appropriate.

But for categories with high online participation, brand and experience led showrooms combined with click and collect capability are key. In many categories, there is still a direct correlation between online sales and proximity to a physical store, especially for traditionally physical retail businesses with a growing online capability.

But putting down new stores, or even downsizing existing ones is expensive, and in a planning constrained market like the UK may not even be possible. However, the move online has created both a demand and supply which can be brought together.

Many big box retailers no longer need as much space as they did when stores were originally laid down. Equally retailers with a large proportion of online sales are looking for new low cost locations where they can sell product, provide service, or enable collection. Retailers are already making the most of this.

Whilst there are many tactical examples of this taking place, particularly with excess supermarket space, there is space for more. One recent example is Argos and Sainsbury’s. An initial trial of putting Argos concessions in Sainsbury’s demonstrated the benefits: for Argos this allowed the quick deployment of low capital stores in new high footfall locations, with parking and convenient access; for Sainsbury’s it generated income from excess space, and drove incremental spend from new customers entering the store.

And the list is growing. The clear potential and benefit for both parties means more and more of these relationships are popping up:

  • Sainsbury’s: Crussh, Clarks, Regatta, Starbucks, Lloyds Pharmacy
  • Asda: Decathlon, McDonald’s, Supercuts
  • Tesco: Arcadia, Sports Direct, Currys

So what makes for a successful concession?

Customers – do the host and the concession have similar customer demographics? Are customers on a similar mission? What are the impacts of this?

Range – is the range complementary or competitive to that of the host? What is the appropriate range in this specific store given the customer group and mission?

Role – What’s the role of the concession - what best meets customer needs (collection / service / sales) and therefore how do you need to rethink how to use the space?

Operation – How do you scale down operations to efficiently manage a smaller store?

Technology – How do you make best use of technology? Do you use the landlord systems (department store style) or your own (mall style)

Relationship – Is this purely a tenant and landlord model or is there more mutual value and thus a strategic deal that can be structured? This will ultimately deliver more value to both parties.

Making this work requires some careful thought up front, identification of the right partner; a willingness to try new ideas and an agile, test and learn, fail fast approach.

Article by Huw Learner, Retail Consultant with EI | S&R.

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