A strategy overhaul and a series of store redesigns resulted in profitability increases of 15-65%.
One of Europe's largest retailers—a hard goods chain with various store formats—was experiencing declining sales, and a large sector of its store operations was unprofitable. The retailer had been losing margins and market share to competitors, and a new player was threatening to enter the shrinking market. This was all reflected in the company’s falling share price.
The company’s CEO brought in BCG to help generate an innovative retail strategy, including new store formats. Specifically, the company wanted to open a sizable number of test stores in a short timeframe; it also wanted to launch additional quick-hit opportunities to improve performance in existing stores.
The BCG team started with an in-depth assessment of the client’s market, customers, and competitors. Using this information, the team designed a strategy to help change the perception of the company’s stores from a self-service marketplace to an exciting and stimulating shopping experience.
This change was to be driven by new product categories, clearer merchandising, more contextual displays, and a product "theater," as well as better service through the increased availability of employees with greater product knowledge. The strategy also included a new inventory architecture, which in turn required negotiating with suppliers and revamping the supply chain. It was also crucial to reestablish the company’s credibility in regard to “destination” categories, which required filling gaps in the assortment and adding key “halo” brands.
BCG’s case team quickly developed a prototype and plan for rolling it out to a significant number of stores. The team also tested a variety of format enhancements, including a low-cost fit-out and a pilot store that contained every change on the “wish list.” The results of these experiments were used to refine the final rollout plan. The performance of the company’s new concept stores has been very positive, with jumps in profitability of between 15% and 65%, as measured on a per-store basis.