Mom-and-Pops Are Cool Again
By Dan Goldman, Kurt Salmon
Just like bell-bottoms and leg warmers, mom-and-pop retailers are back. Not long ago, it seemed like they would be permanently relegated to some dusty attic space, a relic fighting for relevancy.
Big-box stores put them there. Between 1992 and 2014, the share of U.S. retail stores owned by companies with fewer than 500 employees fell 13%.i That’s because big boxes promised lower prices and a wider assortment, points brought home by large mass market advertising campaigns.
But in the past few years, consumers have begun to realize that mom-and-pops are actually pretty cool again. This isn’t just some twee local movement that works only in Portland and Williamsburg; it’s happening around the nation. In fact, this year, the number of retailers with fewer than 500 employees started to show meaningful growth for the first time in 25 years — with a 1.1% combined annual growth rate from 2011-14.
Indeed, consumers are once again converging on local retailers. According to a Kurt Salmon survey of over 900 consumers conducted in September 2014, 29% of consumers said they are shopping more at neighborhood stores now vs. three years ago. The survey also found that roughly half of consumers say local stores now account for at least 50% of their shopping trips.
There are two primary reasons why these local retailers got their groove back: an evolving consumer mindset that is reshaping their perception of value, and technology that is helping to revolutionize the retail landscape and level the playing field.
Evolving Consumer Mindset
Coming out of the recession, the initial surge in local retailers’ popularity was fueled by consumers’ desire to support local jobs and business owners.
But since then, three other sustainable consumer psychographic trends have joined that local economic sentiment: consumers’ thirst for artisanal and locally produced products, exceptional customer service and greater authenticity. In short, consumers have had enough of the cold, concrete box and are shifting how they define value — it’s now much more than just low price.
Three dynamics are driving this artisanal and locally produced product trend. First, consumers are increasingly interested in understanding a product’s origins, based on the idea that if you can trace and break down a product into simple components, it’s likely to be healthier or more humanely produced. Second, unique items help consumers feel like they are expressing their individuality. And last, but not least, artisanal and locally produced items are often perceived as higher quality.
Local retailers have also done a better job at providing top-notch customer service. While this starts with store associates who are in tune with the needs and wants of their target customers, it also requires deep product expertise and the ability to ask their customers the right questions to enable quality engagements. Unfortunately for big-boxes, customer service was often the first to go in their quest to make products cheaper to compete with Amazon and other e-tailers.
Consumers are also seeking more authentic experiences from retailers, including a unique store environment, employees who are subject matter enthusiasts — making customers feel like they’ve found a new group of potential friends or people they aspire to be one day — classes, events or other elements that create a personal connection.
Technology Leveling the Playing Field
In addition to changing consumer preferences, technology is helping give mom-and-pops a new advantage. Over the past five years, the Internet has reshaped the retail landscape by both putting pricing pressure on big-box retailers and creating platforms that allow local retailers to more effectively compete.
Creating a Retail Vacuum
Big-boxes are now finding themselves falling out of fashion because of the same reasons they initially shot to success. They drew consumers away from local stores with lower prices and a wider assortment, but now Amazon and other e-tailers have taken these features to the next level. The Internet has also fundamentally changed consumer preferences by digitizing products like videos, music and books, therefore making the big-box approach in these categories more or less obsolete.
We’re all familiar with the results of these two dynamics: Borders, Blockbuster, Tower Records, Circuit City, to name a few. These store closings have left a brick-and-mortar vacuum for local stores to fill, and due to their smaller footprint, local retailers don’t need to generate as much traffic or sales to turn in healthy margins.
Providing Scale and Reach
The Internet helps democratize the retail landscape in multiple ways. First, it has provided smaller businesses access to online platforms and marketplaces — like eBay, Amazon and Etsy — that expand their capabilities and reach with minimal investment.
The Internet has also helped small businesses gain far greater exposure and reach consumers around the world without expanding their retail footprint by leveraging the power of social media and targeted marketing. One 15-year tracking study of small businesses found that more than one-quarter of local stores are planning to spend money on digital marketing campaigns in the coming year and almost half currently buy online advertising.ii
Thinking about what lies ahead, not all local retailers will have their chance to become cool again. In reality, the market is now at an inflection point at which the good local operators are winning, while the hobbyist local operators are continuing to get squeezed out.
Ultimately, the local stores that are set up for long-term growth are effectively leveraging a mix of artisanal products, great customer service, authentic experiences and a sense of community as a recipe for success and differentiation. These retailers are operating more effectively and efficiently than ever and have strong tailwinds at their disposal — favorable consumer trends and a relative power vacuum in the brick-and-mortar space — to help turn back the clock and reestablish themselves as the hippest option on the block.
i U.S. Bureau of Labor Statistics
ii BIA/Kelsey’s Local Commerce Monitor
iii 2014 Specialty Bicycle Retail Study, BicycleRetailer.com
iv Nielsen SoundScan
Dan Goldman is a senior manager in Kurt Salmon's private equity and strategy practice. He can be reached at [email protected].
Online fave Nasty Gal to open second physical store
Santa Monica, Calif. — Online teen fave Nasty Gal is opening its second brick-and-mortar location on March 27, on Third Street Promenade in Santa Monica, California.
Similar to the retailer’s first physical store, which opened in 2014 on Melrose Avenue in Los Angeles, the new Nasty Gal Santa Monica is designed by architect Rafael de Cardenas, who brings with him a signature post-'80s aesthetic infused with Art Deco and Neo-modernist elements.
The 6,500-sq.-ft. store boasts an expansive full-service shoe salon and, similar to its Melrose store, two-way mirrored fitting rooms that push the boundaries of voyeurism. Nasty Gal's signature edgy femininity is incorporated into every aspect of the storefront and interior design: From its vivid red and blush color palette to industrial-chic fixtures and retro neon signage.
"We are proud to introduce an entirely new format for Nasty Gal retail. Our Santa Monica store offers a broader range of styles as well as focused destination areas throughout. The team is psyched to meet our local fans and introduce them to the Nasty Gal tribe. What we are doing here is a movement," says Nasty Gal CEO Sheree Waterson.
Store associates, known as the 'Nasty Gal Muses,' will work hand-in-hand with customers to offer a full-service personal shopping experience.
In true Nasty Gal fashion, the assortment will range from high to low, accessible to aspirational, with new styles hitting stores each week. Racks of rare vintage finds from iconic designers including Moschino and Chanel will be juxtaposed alongside current international and local designers.
Taubman’s Mall of San Juan opens in Puerto Rico
San Juan — The Mall of San Juan, the first upscale shopping center in Puerto Rico, officially opened its doors on March 26. The 650,000-sq.-ft. shopping center, developed through a partnership between Taubman and New Century Development, has a retail line-up includes the Caribbean's only Nordstrom and Saks Fifth Avenue. Sixty percent of the tenants are unique to the market.
"The Mall of San Juan will elevate the shopping experience in Puerto Rico by offering everything from the most sought-after luxury and contemporary brands to incomparable dining and entertainment," said Robert S. Taubman, chairman, president and CEO of Taubman Centers. "We're excited to welcome so many local residents and tourists to what I believe is the most beautiful mall in our portfolio."
Added Luis Rivera Ortiz, president of New Century Development: "We have eagerly anticipated the opening of The Mall of San Juan. It's very rewarding to see our vision realized, and to have such an overwhelmingly positive response to the center."