Store Rationalization and Space Productivity in an Emerging Market Department Store: A Dynamic Capabilities Perspective

This study examines how an incumbent department store retailer in an emerging market reconfigures its physical store network to sustain profitability under omnichannel pressure. Drawing on a longitudinal single-case study of PT Matahari Department Store Tbk between 2019 and 2024, the research analyzes the relationship between store rationalization, space productivity, and financial performance amid sustained digital disruption and shifting consumer behavior. Using archival data from audited annual reports, sustainability disclosures, and institutional sources, the study traces changes in store count, cost structures, and profitability over time. The findings show that periods of physical store expansion were associated with declining profitability despite stable revenues, while subsequent store closures coincided with improvements in net profit driven primarily by cost realignment rather than demand growth. Interpreted through Dynamic Capabilities Theory, the results suggest that store rationalization constitutes a deliberate process of asset reconfiguration involving sensing deteriorating space productivity, seizing opportunities to realign the store portfolio, and transforming the role of physical stores within an omnichannel system. By foregrounding space productivity as the mechanism linking asset reconfiguration to performance outcomes, this study challenges decline-oriented narratives of store closures and advances understanding of how incumbent retailers in emerging markets adapt physical retail space to sustain financial resilience in omnichannel environments.