(Bloomberg Gadfly)—Finish Line said Friday that closing stores has been good for business. Other retail chains should pay attention.
The athletic-wear retailer has closed 55 locations in the past 18 months, taking its store count from 640 to 585. The moves were part of a plan laid out last January to shutter a quarter of its namesake Finish Line stores over the next couple of years to create a smaller, more profitable footprint.
Meanwhile, it will remodel dozens of existing stores, ramp up smaller Finish Line outposts located inside Macy's department stores, and turbo-charge web and mobile sales.
Closing stores over the course of the year hasn't been easy for Finish Line. The company has wrestled with an overflow of inventory, as well as restructuring costs and supply chain issues that have dinged its bottom line.
Although sales at established Finish Line stores rose 5.1 percent in the second quarter from the year before, topping estimates, its stock dropped by as much as 7 percent on Friday after the company trimmed its sales-growth forecast for the current quarter.
Still, Finish Line's experience highlights the important, but difficult, path forward for retail chains that had become addicted to new stores as the only way to fuel sales. Now that sales growth is no longer keeping pace with new store openings in an over-stored America, profitability has suffered.
Macy's pleasantly surprised Wall Street earlier this summer by announcing plans to close 12 percent of its total store base, more locations than it closed in the past six years. Yet many of Macy's competitors -- including Kohl's and J.C. Penney -- declined to follow suit with large-scale store-closing plans of their own.
It's understandable. Closing stores can be painful. Macy's CEO Terry Lundgren told analysts this month he had "an emotional breakdown" when deciding to close Macy's San Francisco men's outpost. "It's where I shop," he said. But he said eliminating unproductive stores positions Macy's to grow from a smaller, stronger base.
Finish Line is already reaping the benefits. Its store profit margins are up and online sales are growing. It has been ahead of many of its competitors in pouncing on shoe and athletic-wear trends, such as the rising popularity of Adidas and Under Armour shoes and clothing.
Finish Line said it has also been able to recapture 20 percent of lost sales from the closed stores by tapping its "Members Circle" loyalty program, which has 10 million members and makes up more than 60 percent of total transactions. Using customer data from the program, Finish Line can target its most loyal users, helping it shift those customers online or to the next-closest locations to shuttered stores.
Closing stores isn't easy for retailers, but Finish Line is showing that the strategy works.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
© 2016 Bloomberg L.P