How You Model Your Store Can Impact Sales

Jun 18, 2014, 11:07 ET from American Marketing Association

CHICAGO, June 18, 2014 /PRNewswire-USNewswire/ -- As online shopping, high rents, and low consumer demand threaten bricks-and-mortar retail stores investments in store remodeling is on the decline.  This is a concerning trend as the place at which a product is purchased or consumed is often more influential than the product itself in purchase decisions.  This study shows that retailers can achieve substantial sales growth from store remodeling, primarily from new customers, while also expanding their customer base.

To be successful retailers must keep their servicescape modern, fresh, and in line with competitors'. Each year millions of dollars are spent to create and/or remodel retail store environments to influence customer behavior.  This is expensive business with the "the average total store remodel today costing USD$3.5 million for décor, equipment, fixtures and labor. Add in lost sales during the remodel period and the loss from markdowns and remodels ends up costing approximately $3.7 million per store." (Weitzel 2010). For retail chains with hundreds of stores, the cumulative costs are substantial. 

Monash University marketing researchers found that sales increase after retail store remodeling, and this increase lasts an entire year. In an even more striking result, it is found that the sales increase is much more substantial for new customers compared with existing customers. In a small independent retail store, the sales increases in the year after the remodeling were 43% for new and 7% for existing customers. For a large multi-store retailer the contrast was similar, 44% for new and 10% for existing customers. Even more impressive is that between 30% and 80% of the growth in sales revenue after remodeling is attributable to new customers. It is also found that new customers visitations to the store were 16% higher after their first purchase in the remodeled store, whereas the rate of visitation for existing customers only increased by 2%. Finally, both retailers recouped their remodeling costs within two to three years—much less than the average time between remodels of seven to 10 years. This analysis appears in the May issue of the American Marketing Association's Journal of Marketing.

Researchers, Peter Danaher and Tracey Danaher, comment that "The look, feel, and mood of a firm's retail store or service environment helps create the 'persona' of the brand," and that "retailers should be confident investing in remodeling their retail store or service environment as a way to increase overall sales performance, and expand their customer base."

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SOURCE American Marketing Association