This article looks at the emotional and psychological impact that renovations have on retail businesses and how the industry can take advantage of the numerous benefits.
Approached to research and report on how renovations impact retail businesses, Linda Cahan, who has been in the retail design business since 1971, decided to divide the subject into three sections: the emotional/psychological impact of renovations; fixtures old and new; and renovation facts and figures.
The Emotional and Psychological Impact of Renovations
According to Linda, the negatives associated with renovations include the fact that they are expensive, time-consuming and there’s no guarantee that they will improve business.
However, regardless of the above, the advantages are abundant. Renovations help one to communicate with staff and clients that when management chooses to renovate a store, it is showing its faith in the future of the store. Both customers and staff are aware that renovations are rarely made to stores on the verge of being closed down.
This certainty creates good faith and a sense of continuity and trust, which, in today’s fragile business climate, are primary goals for all retailers.
“When retailers renovate a store, they’re telling the competition, ‘I am here to stay’, which falls into the reliability and stability category,” says Linda. “People want to know they’re buying from someone who will stand behind their merchandise.”
Linda goes on to say that renovations equal longevity in the mind of the consumer. So too, better service equates to better sales, while renovations also equal better sales. “When a store is renovated it says to the competition: ‘I’m in business, I’m counting on growth and I’m going after the consumer!”
She also highlights that the perceived quality of a purchase is in direct proportion to the look of the store. “People buy down in prices when a store’s appearance is faded, tired and old, Linda continues. “Even when maintenance standards are high, people can sense dead energy.”
She identifies the following:
• Renovations = management’s confidence in the future of the store;
• Renovations = employees’ pride in the look of the store;
• Renovations = customers’ awareness that the store is in business to stay and is growing;
• Awareness of growth and appreciation of new look = improved sales.
Fixtures Old and New: Making it even better is key
Even with a captive audience, customers will purchase less if the energy in the store is outdated. While cleaning and moving merchandise will improve energy flow, renovations alone create a dramatic increase in the perceived value of the merchandise. If the merchandise is perceived to be more valuable, customers will feel better about themselves when they do make a purchase.
A newly renovated store offers a fresh floor plan, new fixtures, different lighting and forces the staff to rethink the entire merchandising for the store. Rethinking encourages creativity, and creativity serves both the customer and the sales staff.
Renovations + Creativity = increased sales.
According to Linda, renovations get energy moving in a store. Most merchants will either admit or brag that when they move something it sells.
There are several reasons for movement creating sales:
1. Neat, clean and newly renovated stores increase the perceived value of the merchandise.
2. When something is moved, energy is created. Energy attracts other energy. People like movement and are attracted to objects that have been moved.
3. When things remain unmoved for long periods of time, they may still look attractive – but, sadly, unwanted and invisible.
Renovation Facts and Figures
“Very few people were willing to share their renovation facts and figures,” highlights Linda. “One major fact that became extremely obvious was that if renovations didn’t pay off, no company would pursue doing them. Every company that renovates one or more stores sees a minimum 10% increase in sales with an anticipated and/or hoped for increase of 38%, which seems to be the average increase after significant renovations.”
She continues by saying that the method of analysing the success of a renovation is unique to each company. “Each figures their costs differently,” she says. “The only figures that matter are those within each individual company.”
Some smaller companies saw immediate increases in sales and didn’t dwell on the actual renovation costs. For other companies, the costs are factored in to determine the actual profit and the percentage of profit increase over time after the initial renovation costs are covered.
One specific company in the US (they did not want their name mentioned) stated that when they decide to renovate one of their stores they first look at the real estate deal. The cost of improvements to the real estate determines how much they need to make on the property after renovations.
“They then create a target for this location,” explains Linda. “They look at the history of the location, the national average of their stores and their actual goal for the store. They determine the sales per square foot by category in the store, the average throughout the chain, their expectations for each department and the gross margin by department.”
For example, one million spent on renovations will generate 2.5 million in sales. The one million will be remunerated and capitalised over five years. Their oldest stores are often located in their best market areas. To remain competitive and to keep their best customers from going into their worst stores, they often renovate highly successful locations to keep them fresh and appealing.
Bobby Drouin, Director of Real Estate and Store Planning for “Things Remembered”, offered great insight into their remodelling projects.
“Things Remembered” has two types of remodels/renovations:
The Skin Package
This is a clean-up/fix-up program that deals with the storefront, carpets, lights and painting of walls.
Full In-Place Remodel
This includes new architecture, custom fixtures – which normally consist of a standard fixture package.
Better malls = better growth
Bobby highlights the following:
• They try to do their renovations when their lease terms expire.
• In some malls they have been averaging 22% increase in sales after full remodelling.
• In their stores located in less successful malls, their increases were based largely on the Skin Package-type remodel and generated between 7% – 12% increases in sales.
Devangshu Dutta, based in New Delhi, India, has been researching the impact of renovations on retail sales internationally. What he discovered was an increase in sales from 10% to 40% in the six months following major refits and renovations.
Gross margins also improved to the extent of 10% to 12%. The sales upswings tapered off after the initial months but sales levels per square foot remain higher than comparable stores that aren’t renovated. They also remain at about 5% to10% higher than previous levels for the same store. The impact, Devangshu states, comes from the renewed consumer interest as well as improved management of space and merchandise.
All those who did not want their names or companies mentioned in this report agreed that the percentage increase in sales after a full renovation averages between 30% – 39% while Skin Package remodels averaged 12% to 20% increase in sales.
“A renovation tells the world that you are putting your money where your mouth is – a cliché that makes financial sense,” continues Linda. “When renovating, you are offering your customers more than the competition. You are giving them an interesting, fresh, creative and hopefully exciting shopping experience. When you correctly factor in location, renovation costs and new merchandise, experience proves that profits will increase significantly over time.”
Acknowledgements and thanks are given to Linda Cahan for the article that appeared on www.thirdeyesight.in/articles