It is a similar scenario to the video store. Sure opening more video stores will result in more revenue (Gary's theory) or closing stores will reduce revenue. It's inevitable. However, opening more stores for the purpose of chasing, on a "like-for-like" basis, a decreasing share of the market is itself a depletion of ROE.
Although lumpy, the costs I have discussed are all effectively a variable cost. I agree there is a fixed component, but from the perspective of the business opening or "removing" a store has a variable return. So the overall impact is a percentage impact on costs (ie my 29% of sales).
So, your assumption is to close all the stores. All I am saying is that they need to avoid the costs. I am instead saying avoid the costs:
- sell the stores (don't continue to pump more capital into new stores and fitouts);
- rationalise the stores. Become a store front to the manufacturers;
- look to alliances with the manufacturers, where they contribute to the cost of the store fronts, but delivery is ex-manufacturer (ie, may people still want to try on clothes to make sure they fit properly, but order from the manufacturer and have the clothes delivered to the home - that way there is reduced need for inventory). The is the way harvey norman is going, buy online and have the goods delivered to a local store/home and the franchisors gets the margin
I can go on.
However, Gary has not shown that he has done any of this, but instead continues to roll stores out and has not treated online seriously.
All I can reiterate is that 10 years ago video stores were everywhere with multiple stores in nearly every suburb. Now here in Sydney you have to drive 15 minutes across 3 - 4 suburbs to find a dodgy little store.
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