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Homework answers / question archive / As more people do more of their shopping online, department store chains are cutting back on the number of stores they keep open
As more people do more of their shopping online, department store chains are cutting back on the number of stores they keep open. This is proving disastrous to some shopping malls.
a. Suppose you are the operations manager for Sears. How do you decide which stores to keep open and which stores to close?
b. Assuming that the shift in shopping from face-to-face to online is permanent, what will the closing of more department stores mean for the following key economic indicators for shopping malls in the short and long run: price (rent they can charge to tenants), output (square footage rented), profits (total revenue minus total cost), and number of malls?
1. The impact of online shopping is inevitable. The stores which have fewer sales require action in terms of closing to cut down on further losses. However, some factors need to be considered when leaving other stores open to business in order to avoid submitting or surrendering to competitors. First, stores that still have more than the average number of customers flocking to purchase should not be closed in a hurry. In fact, they should be operated in a better way to ensure that operations are still ongoing. Stores that still make a profit despite reduced customers should also remain in operation in such situations. This means that, despite the challenges, normal operations are still profitable to the organization. Few customers can still make huge purchases. Finally, stores located in areas of high demand for products should not be closed simply on the grounds that online purchases are more competitive. Instead, a strategy should be put in place on how best to reach out to customers regardless of competition.
2. Price; in the long run, shops will have to lower the prices of certain products in order to keep up with the competition of online shopping. This will mean that they will tolerate customer preferences in terms of prices. The rent will also have to be re-negotiated to allow a favorable market environment without pressure. Without lowering the rent, a business person may have to close a shop in such situations because there will be a double loss for them.
Output; Since online shopping does not require rental costs, the establishment of stores will in fact be reduced in order to avoid losses. This is keeping in mind that it is rare for tenants to come by.
Profits; as a result, the profits from stores will be greatly reduced. Less income will come from tenants, and fewer shoppers will flock to the stores to make purchases. Unless the stores are converted into business centers in different segments of the business that do not require online shopping, the losses will be too large to bear.
The number of shopping centers will be reduced. With fewer shoppers, shopping centers attract fewer customers who make purchases. It will be a little meaningless to start building new buildings as malls due to the uncertainty of the future.
