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Big Names – Small(er) Stores

I’m not sure if you’ve noticed, but it seems like you can’t pick up a paper or click a mouse lately without reading about some big-box retailer rolling out its smaller store format. Target has its new 60,000-square-foot CityTarget concept, while Walmart has Walmart Neighborhood Market and Walmart Express stores. It seems like everyone is downsizing.

What’s interesting to me about these examples is that all of them involve changing the retail/brand fundamentals in order to fit into smaller store prototypes—Walmart Express is not just a smaller version of a traditional Walmart store; it’s a whole new concept. What about actually finding ways to adapt existing retail concepts into smaller layouts? These players are clearly trying to “shake things up” in order to have a little bit more flexibility and, in some cases, get a foothold in urban areas, but it seems like they’re making some strong compromises to do it.

What’s even more interesting to me is what retailers like Office Depot and Best Buy are doing. They’re fitting their full line of products and existing brand concepts into smaller footprints. I recently saw plans for a new 20,000-sq.-ft. Best Buy, and wondered, “What took them so long?” I’m not talking about a Best Buy Mobile, but a classic Best Buy in a smaller format. Maybe it was the pressures of the recession, but I think these newer, smaller formats are the inevitable result of retailers asking themselves the tough questions about efficiency and then figuring out which departments actually generate more sales per square foot. With less wasted space for surplus inventory and more effective floor plans, some retailers are realizing that they can offer virtually the same selection in a much smaller space. It’s a great solution for retailers like Best Buy and Office Depot with high-value products that don’t take up a lot of space. It’s also a way for retailers to continue expanding by opening up in markets that aren’t a great fit for a full-sized store and relocating existing stores within a marketplace.

Retailers used to think consumers saw bigger stores as more exciting. But I see that perception changing. I’ve personally seen plenty of examples of retailers expanding their prototype stores and generating little–if any–additional traffic. Instead they saw their sales-per-square-foot plummet and operating costs skyrocket. I think Apple’s stores have had a big impact on the retail psyche. They’ve basically proven that bigger isn’t always better. Apple sized their stores based on their products, giving their stores the look and feel of being busy and exciting. A small store packed with people creates a buzz. If you see lines out the door every time a new product is released, you start to think, “Hey, this is a place I need—and want—to be.”

While we all value convenience, the dirty little secret about mega-store formats is that they aren’t really that convenient! Oftentimes, they trade one kind of convenience (more products) for another (ease of access, optimal locations). And, as an aging population, many of us really don’t want to park on what feels like the other side of the moon and negotiate our way through a space the size of an aircraft hangar just to get a jar of peanut butter. Things aren’t the way they used to be. Maybe there’s something to be said for that smaller store that carries everything the shopper needs in a convenient, well-located place.

What do you think? What retailer do you think will be the next to downsize? And, with Whole Foods already crunching the numbers and returning to smaller formats, is this a trend you think we’ll see other supermarkets following, too? Email me at jgreen@jeffgreenpartners.com.

Jeff Green is president and CEO of Phoenix-based Jeff Green Partners (jeffgreenpartners.com), a leading consulting firm specializing in retail real estate feasibility, retail expansion planning, medical retail planning, location analysis and commercial land use.

The Shrinking Box

The economy is really only part of the issue here. The real story, based on the research we've done is demographic. The demographic stars are simply no longer aligned for hyper-retail concepts in North America. Half of all Baby Boomers are over 55, Gen X is smaller and more financially challenged and GenY area moving target with severe unemployment issues. Add this to the fact that tastes and preferences are more diverse than at any time in the last 40 years and it all makes for trouble for big box concepts.

The push to urban markets too is being driven by shifts in demographics and population distribution.

When you combine this historic demographic shift we've experienced with the inordinate economic growth of the last 30-40 years, it forms a set of circumstances that are virtually unrepeatable -at least in our lifetime.

Big retail will survive but not on this continent.

Your Response to My Article

Your last sentence sums it up.

However one of the things I wonder is why retailers always thought bigger was better. Apple has proved that a small, busy store is an exciting store! Others should learn from the Apple model!

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