Bain: Traditional Accounting Doesn’t Capture Full Value of Stores

Stores should play a bigger and more valuable fulfillment role in the future
January 4, 2017David Gill

Bain&CologoFULLBOSTON-In an omnichannel world, retailers must adjust their accounting methods to determine the real value of their brick-and-mortar stores, according to a report from management consulting firm Bain & Co.

Titled, “The Power of Omnichannel Stores,” the report asserts that traditional cost-based accounting (valuing stores and their inventories based on their costs) can be misleading in assessing the value of stores. “Physical locations impact brand awareness, consideration and sales both in stores and online, meaning their value is becoming harder to quantify,” according to the report. “For example, Bain finds that physical stores can increase online sales by 15 percent to 30 percent in their catchment areas [the geographic areas from which the stores derive most of their customers].”

Instead, Bain recommends that stores be valued based on a variety of scenarios. “For example, what happens over the next three years if we close 40 percent of our stores and build two new fulfillment centers? What happens if we close some stores, open others and sell two of our fulfillment centers?”

From an analysis of about 75 scenarios of store and fulfillment center footprints, Bain determined that “shipping from stores was usually the better option, especially for retailers with fewer fulfillment centers. And, as consumers continue to expect faster shipping or tighter delivery windows, stores will play an even more valuable fulfillment role.

“Most retailers (especially smaller ones) are likely to see a significant cost advantage on one-day shipping by shipping directly from stores,” according to the report. “In addition, technology improvements, including robotics that will do more of the picking and packing in stores and driverless cars that will be available for last-mile delivery, also will benefit the relative economics of ship-from-store over the long term.”

This is one reason that stores remain an integral part of the future of retailing. “For omnichannel retailers, websites and mobile apps are not just a means of ordering: They are front doors to their stores,” Bain said in the report. “And stores are not just showrooms: They offer inspiration and community, and they function as test labs, help desks, purchase points, pickup and return locations, and shipping centers.”

David GillDavid Gill | Senior Editor
dgill@hfnmag.com

David Gill covers home textiles, small electrics housewares, personal-care products, cleaning products, mattresses, consumer electronics and major appliances. He also reports on retailers and writes about the business and financial side of both vendors and retailers. He has more than 30 years of experience in business journalism, and has worked for other publications and websites that cover consumer products from both the manufacturer and retailer sides. His outside interests include sports (he is a big fan of the New York teams and of British soccer), cooking, movies and theater. He occasionally enjoys a good cigar as well.

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