Lidl is reconsidering key investment projects due to complexities and cost implications.
Lidl reconsiders project investments due to complexities
Lidl has been working on three large investment-heavy projects in the last year. It has been preparing market entry to the USA, it planned to invest in a convenience store concept 'Lidl Express' with click & collect in select stores in Germany, and aimed to remodel its entire network to the new store of the future concept - see Lidl Rushden store visit report for more insight.
However, these projects have brought a lot of complexities to Lidl's lean business model and in turn has led to an increase in costs. While preparation for market entry to the USA are in full speed, investments in the other projects have been reconsidered.
'Store of the future' remodelling on hold
Lidl will review the scale of its store project and the pace of its implementation.
The remodelling process has been too expensive, Schwarz Group's CEO Klaus Gehrig revealed in an interview published in the German Spiegel. The large investment in the store remodelling has not yet paid off in many countries, especially those in Eastern Europe. Even though shoppers get more spacious stores with daylight, new signage, new floors, higher wooden ceilings and new lighting, the sales per square metre, which is one of Lidl’s KPIs, has not increased.
He agreed that stores should look better, but the features of the new store concept have been expensive and are creating additional operational costs rather than cost savings.
As a result, some features of the new stores such as the spacious feel and 'loft' concept may be scrapped. Lidl may be more selective about which sites will undergo remodelling, shortlisting those with higher potential for sales uplift and in markets where Lidl faces strong competition. We foresee Lidl continuing the store remodelling programme in Germany and Poland, whilst it may implement a revised 'store of the future' concept in other new store openings.
Investment in e-commerce?
Shortly after Lidl CEO Sven Seidel stepped down from his role in February 2017, Lidl called off the launch of Lidl Express store in Berlin as well as introduction of click & collect service.
Having cancelled its click & collect project and revised its store of the future plans, it remains unclear if Lidl will also revise its investment in e-commerce. Lidl launched online in the Netherlands and Belgium last year and it was reported to launch online in Spain this year. With the newly revised focus on cost control, expansion of e-commerce in new markets could be reviewed as well.
In context, with Amazon Fresh launching in Berlin and Aldi's testing Amazon lockers at stores in Bavaria, Lidl might have look to an alternative, cost-efficient e-commerce strategy in the short term. Selling its own products via another online retailer could be an option - see how Aldi has done this in China here.
For more insight on discount have a look at our Discount 2020 report.
Written by: Milos Ryba, Head of Discount and CEE