Dive Brief:
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A store closing will generate a surge of sales outside of the retailer’s typical demographic, as millennials and men flock to check out the deep discounts of a clearance event, according to research from location intelligence company Foursquare.
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More than half (56%) of Kmart’s “typical shoppers” are women and more than two-thirds are over 35, but after April 2016 store closure announcements, Kmart demographics swelled to include 10% more millennials and 7% more men, Foursquare found. Similarly, while 61% of Macy’s “typical shoppers” are women over 35, closeouts brought that average down to 52% women as the number of shoppers under 35 increased 8%.
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“When a retailer announces store closures, one might assume that competitors see an immediate benefit. Yet that’s not what the data tells us,” said Foursquare’s Sarah Spagnolo. “Instead, millennials surge to closing sales. Loyal shoppers will stick with the retailers they love, traveling further to stores despite access to fewer locations. And competitive companies will have to wait several months before they see a boost in foot traffic to their stores.”
Dive Insight:
Store closures and going-out-of-business sales are rife in retail these days. The Limited, Wet Seal and American Apparel have shuttered or will soon close all of their U.S. locations in the aftermath of their recent bankruptcies.
But other retailers are downsizing — for a variety of reasons. For Macy’s, which gobbled up regional department stores in the early part of the century and bloated its physical store footprint in the process, store closures were an inevitability, many experts believe. For Kmart and Sears, it may be a combination of being over-stored, at least at some point, and a pressing need to slash expenses as parent Sears Holding Corp. falters under heavy debt and dwindling sales.
But closing stores, under any circumstances, is a tricky business for retailers. There’s plenty of evidence showing that closing a store tamps down a retailer’s e-commerce sales from that zip code, for example — a reality that moved Moody’s Investors Service last year to warn retailers to “tactically close” stores and otherwise leverage the advantages of physical locations to attract shoppers through all channels.
Closeout events also mean that competing retailers lose market share, defined by Foursquare as a “portion of visits for a specific retailer versus all visits to top competitive national big-box or department store locations.” During Kmart closing sales, Macy’s stores lost 44% of market share, Kohl’s lost 32%, Target lost 14% and non-closing Kmarts lost 12%. During Macy’s closing sales, Sears lost 73% of its market share, Kohl’s lost 38%, Kmart lost 19% and J.C. Penney lost 15%.
Macy’s and Kmart stores did come back, though, especially in areas where another store was nearby: Loyal shoppers were willing to travel an extra 4.3 miles (almost double their previous distance) to shop at Kmart, according to the study. Kmart stores that remained open saw market share rise 39%. Macy’s retained 71% of their “typical shoppers” after a store closed, leading to a 36% rise in market share in nearby Macy’s stores.
Foursquare, which is a location analytics company, didn’t delve into effects on e-commerce. But its findings could help develop such tactics. Retailers staging closeouts should be aware, for example, that they should be marketing to shoppers beyond their usual demographic. And once they’ve shuttered stores, an effort to send their loyal customers to their next-closest location might get some traction.