Small Formats, Big Opportunities
A 3,500-sq.-ft. Walmart? Sounds hard to believe, but the world’s largest retailer broke new ground in January when it opened “Walmart on Campus” on the grounds of the University of Arkansas in Fayetteville. The store, open to students and non-students alike, reflects the sea change that has occurred at Wal-Mart Stores and throughout the industry during the past couple of years as retailers across the board show increased flexibility and a willingness to rethink formats and footprints — most often, by thinking smaller.
Indeed, while Walmart is noncommittal regarding the expansion of its just-opened campus concept, the chain has made no secret of its plans to target urban markets for growth using a scaled-down model.
Speaking to a meeting with investors last fall, Bill Simon, head of Wal-Mart’s U.S. operations, said Walmart plans to open 30 to 40 smaller-format stores (in the 30,000-sq.-ft. to 60,000-sq.-ft. range) across the country in its current fiscal year, mostly in urban markets. Smaller locations along the lines of the company’s convenience-styled stores in Latin America are another possibility. Walmart SuperCenters, around 195,000 sq. ft., will remain the company’s mainstay, but newer ones will shrink slightly to about 180,000 sq. ft., and Walmart will step up its plans to open midsize stores of about 150,000 sq. ft.
Meanwhile, the nation’s second largest discounter, Target Corp., is also incorporating smaller-format urban stores into its business strategy. The company will debut its smaller format in Seattle in 2012, with plans to expand to 10 other markets in such cities as Baltimore and San Francisco (where it will open in the city’s renovated Metreon Center in 2012) during the next few years. Target’s urban prototype will range anywhere from 60,000 sq. ft. to 100,000 sq. ft., with the San Francisco location reportedly coming in at 85,000 sq. ft. >
Target already has some 150 stores in urban areas, including a location in New York City’s East Harlem area that opened last summer. Lessons from those stores are proving useful as it explores smaller formats.
“We know our smaller formats will have edited assortments,” said Jenna Reck, a spokeswoman for Minneapolis-based Target.
Patio furniture that wouldn’t fit in urban dwellings, for example, would likely be eliminated, as would large item quantities. “Urban customers don’t need bulk parcels,” Reck said.
But it’s not just the discount giants that are opening or testing smaller stores — Ann Taylor, Kohl’s, Old Navy, Charlotte Russe, hhGregg, Gap Inc. and a host of other disparate retailers are also getting in on the act. Gap, which operates stores as large as 18,000 sq. ft., has been working to reduce its average store size to about 10,000 sq. ft. Its Old Navy brand is reportedly seeking 15,000-sq.-ft. to 18,000-sq.-ft. sites, down significantly from its past model. Even Sports Authority has a small-store concept, called S.A. Elite, which debuted last August at Cherry Creek Shopping Center in Denver.
Bloomingdale’s is also slimming down. Its newest store, in the renovated Santa Monica Place, in Santa Monica, Calif., occupies some 80,000 sq. ft. of selling space and features carefully edited assortments. Some slower moving categories, such as children’s clothes, were dropped entirely. One thing that wasn’t sacrificed was Bloomingdale’s signature style: The store has an eclectic feel and cool vibe. It also boasts a number of space-saving innovations, including a mobile rack on the second floor ceiling that moves mannequins and clothes across the space.
A telling indication of the downsizing move is the fact that Nike has no plans to open more Niketowns. Instead, it will open “brand experience” stores along the lines of its new prototype at Santa Monica Place at Third Street Promenade, in Santa Monica, Calif.
The two-level, 20,000-sq.-ft. Nike emphasizes customization services and boasts a flexible format that can be easily reconfigured. Even the cashwrap is mobile, and is wired so that it can be moved to other locations.
Flexible formats and downsized stores aren’t exactly new — chains from The Limited to The Home Depot have cut back on store size over the years to accommodate nontraditional locations or reduce operating costs. But a combination of demographic, economic and technological opportunities is propelling these trends forward with a newfound urgency.
“Smart retailers are finding ways to shrink their footprints — without compromising core offerings — to leverage a myriad of real estate opportunities that will only accommodate smaller formats,” said Spence Mehl, senior VP with New York City-based real estate advisory firm RCS Real Estate Advisors. > “We are seeing not only a host of urban real estate opportunities, which are very attractive for growing retailers, but also spaces outside core urban areas at historically low base rents. Those retailers that can control their inventories and shrink their footprints will likely prosper in the years to come.”
Demographically, smaller stores serve opposite ends of the retail spectrum — aging baby boomers who feel overwhelmed by superstores, and younger consumers more accustomed to shopping online. Both groups are showing a preference for the more targeted shopping experience that a smaller store often provides.
“You’re seeing it now, and you will continue to see it,” said Leon Nicholas, director of retail insights of consultancy Kantar Retail, Columbus, Ohio. “This trend toward smaller stores is about making things more convenient.”
Sustainability also is playing a role, said Lew Kornberg, a managing director of Jones Lang LaSalle’s Corporate Retail Solutions division, Chicago, which manages real estate solutions for retailers.
“There’s a movement to reuse buildings that might otherwise have been torn down,” he said.
Expansion opportunities in dense urban markets are perhaps the biggest driver to smaller stores. For many chains, particularly big-box ones, urban areas represent the last frontier for major domestic growth. Such areas, which remain largely untapped by the national players, could potentially yield hundreds of millions of dollars in sales going forward. (Walmart, for example, has no stores in New York City and only two in Los Angeles. Only 47 of its 4,300 U.S. stores are in big cities.)
Retailers’ willingness to adapt their footprints to urban neighborhoods where space is at a premium has not gone unnoticed. This past summer, Walmart overcame strong and long-standing union and political opposition in Chicago, and was given the approval to build new stores. The discounter’s plan to build stores of different sizes was credited with helping to win over the opposition.
But there is more to the downsizing move than demographics and marketplace realities. The fact is some stores simply got too big, said Paul Freddo, senior executive VP leasing and development of Developers Diversified Realty, Beachwood, Ohio.
“Old Navy is an example of a retailer that can be just as successful with an 18,000-sq.-ft. store as they can at 25,000 sq. ft.,” Freddo said.
The financial crisis of the last two years also factors into shrinking store size. For some retailers, opening and operating smaller stores are a way to cut costs. Also, with new development at a virtual standstill, some chains looking to expand were forced to consider new prototypes to fit into buildings vacated by defunct chains such as Circuit City, Steve & Barry’s and Mervyn’s. When Kohl’s acquired a number of Mervyn’s locations, it had to deal with a smaller footprint, a prototype it now is continuing, according to Freddo.
“A smaller size also allows a retailer to reach smaller markets with less density, and to be closer to its existing store base,” he explained.
And even where space might exist, noted Kantar’s Nicholas, consumers are saving time and money by shopping online and via smart phones. Online holiday 2010 sales rose 13% to $30.8 billion, according to Reston, Va.-based comScore Inc.
“The digitalization of retail goes with the shrinking of retail,” Nicholas said. “With so much being sold online, the stores don’t need as much merchandise.” >
Jones Lang LaSalle’s Kornberg cited an example of a shopper who, while standing in a Macy’s store, bought shoes from Zappos.com using a smart phone.
But that’s not the only way technology is affecting retail. Ironically, what is expanding are distribution centers, which must hold the merchandise that is being purchased online or delivered to the smaller stores. As these warehouses become more sophisticated, they can ship to stores more promptly, reducing the need for large backroom areas.
“This allows [retailers] to be leaner and meaner,” Kornberg added.
Beyond size: WSL Strategic Retail CEO Wendy Liebmann sees two fundamental issues for retailers with regard to the physical store: What is included in the mix, and what is eliminated.
“Walmart’s first neighborhood market just did a little of everything, and that didn’t work,” she said.
One point on which many industry experts agree is that going forward, even big-box chains must adapt to the needs and demands of individual locations if they want to be successful.
“We’ve already had the luxury of size and scale,” Liebmann explained. “This is a moment in time when people want local. That doesn’t mean that stores will go away. But they can’t survive with the same format in every location. It has to be customized.”
The key for retailers and real estate companies will be to plan flexible spaces from the beginning of construction.
“It’s always easier to plan on the front end than to retrofit on the back end,” Jones Lang LaSalle’s Kornberg advised.
Despite a successful holiday season, most retailers remain cautious about expansion. And with no substantive new development taking place in the foreseeable future, retailers looking to grow will have to adapt to existing supply, whatever its size.
“We’re living in an interesting time for landlords and retailers,” added Developers Diversified’s Freddo, who said that changes are fostering greater cooperation between the frequent.
“The recession was a wake-up call for both,” he said.
The Future: Converged Retailing
As consumers become more digitally connected than ever before, with product information and price comparisons at their fingertips, brand loyalty isn’t what it used to be. In response, the industry may be readying itself for a shift that puts consumers in the driver’s seat, dictating what they want, wherever they choose. “Retailers will have to offer a personalized, consistent experience across all channels to stay competitive and be willing to listen to each consumer’s preferences,” said Mike Webster, senior VP and general manager of retail and hospitality for Atlanta-based NCR Corp., a technology company whose assisted- and self-service solutions and support services address the needs of retail, hospitality, financial and other organizations around the world. Chain Store Age spoke with Webster about NCR’s interpretation of “converged retail” and how it has the potential to change the face of the industry forever. How would you describe “converged retailing?”
The intimate relationship between merchant and consumer is currently lost. Retailers are trying to connect with us via so many platforms, and personalization has faded along the way. Merchants try to push Web recommendation-predictions, but these are basically guesses. The future of the retail industry is going to move away from a business-to-consumer world and pick up a consumer-to-business model, where shoppers will be calling the shots and dictating their preferences. To do so, all channels will have to converge into one. This will allow the retailer to begin a transaction in one channel and add value in another.
Why is there a challenge with personalization right now?
It’s hard for merchants to create a consistent, personalized experience across various platforms. There remains a big focus on multichannel strategy, but multichannel is just another way to connect with the consumer, and it is inconsistent. Merchants often send different messages to different platforms. In reality, retailers don’t know that much about individual shoppers. Shoppers may be getting promotions about dog food from a pet retailer when they actually have a cat — the retailer only knows that they have a pet. It’s also a struggle for retailers to harmonize all of the fragmented data out there — from social media to the mobile world — to form a more holistic view of the consumer.
Merchants have to figure out a way to really engage each shopper to better understand their preferences and how they want to be served. In the future, consumers will instead be able to co-create with the retailer, so their presence can be detected in any channel and preferences can be met.
How would a shopper declare their preferences?
Sophisticated software from third-party providers can enable retailers to learn about each shopper on a personalized level. The retailer will ask simple questions via the Web, mobile device or at checkout in a store to hone in on their needs and wants. Shoppers don’t want to be inundated with unrelated promotions, so merchants can make their life easier. Soon, a whole profile can be developed about a shopper so the retailer could know that they prefer certain types of organic products for their six-month-old baby. In a store, a phone number or loyalty card could also be handed over so the cashier would know the shopper doesn’t want a receipt with their purchase (or wants the receipt printed in a certain language).
How will in-store technology reflect this change?
Digital signage can create a conversation with a shopper in a personalized, targeted way. Right now, it’s broadcasting a message, but in the next few years, shoppers will be able to interact with it by swiping a loyalty card, for example, that clues the technology into who they are. The signage, or even a kiosk, can also suggest items in the store that would match what they bought online last month.
How close are we to this reality?
We have already seen it in small pieces, but it’s probably the start to a three- to five-year journey. Personalization will be more prevalent in the next few years, and the results will be very powerful for those that take advantage of the strategy.
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Lola Makes Stylish Debut
Fashion apparel powerhouse BCBGMAXAZRIA Group has opened a new retail format that combines fast fashions with a boutique experience. Targeted at young women ages 16 to 26, Lola has a cool, hip vibe and eclectic flair.
The prototype, at Mall of America, Bloomington, Minn., is designed to recall the sort of urban apartment that a young woman might rent, and comes complete with fireplace, daybed, spiral staircase and closet. It was designed in house by BCBG.
“To all of us, Lola was a real person,” said BCBG designer Amanda Thevenot. “It was more like helping my little sister decorate her apartment than it was designing a store.”
All the elements in the space, from the music to the wall decor, are intended to reflect the tastes and personality of the fictitious Lola, whose profile was developed by the BCBG team. The 3,000-sq.-ft. store is meant to be her at-home world brought to life in a retail setting, and is comprised of a series of “rooms,” with a living room, bedroom and closet.
BGBG partnered on the project with fixture company idX Corp., which built a model store at its St. Louis showroom. (Lola served as the launch pad for idX’s new program that allows fixtures to be shipped directly from its China manufacturing facility to the store. The program allows considerable time savings, critical to this project.)
“idX were true partners on the project,” said Chris Love, VP architecture and construction, BCBG, Vernon, Calif. “We went from concept to reality in six months, and we couldn’t have pulled this off without their hard work and resources.”
A spiral staircase ranks among the store’s visual highlights. It vertically enhances the space and breaks up the horizontal lines of the fixtures, while also providing a creative way to display accessories.
The living room area features a fireplace, complete with a mouse running into a hole beside it. In the bedroom area, the cashwrap is designed as the dresser, and some merchandise basics are displayed on a daybed. The closet serves as the fitting room area.
On the walls, the design team pasted relevant cut-out magazine photos, poems and other items. The storefront is set off with salvaged doors for a slightly Lower East Side feel, and trompe l’oeil hand-painted architectural details and hand-drawn graphics.
The fixtures are specifically designed to work with Lola’s fast-fashion merchandising. The wall displays were produced to clip in place and provide architectural detailing without making dramatic changes to the architecture. Clever details make the displays flexible and easy to merchandise.
Since making its Mall of America debut, Lola has opened a second location, at Plaza las Americas, in San Juan, Puerto Rico. The company plans more stores going forward.
“Sales are far better than expected,” Love said. “Because the vibe is so cool and the salespeople are trained to relate to the customers, girls don’t want to leave the space.”
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