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Small-Mart: An urban legend in the making?

BY Jeff Green

I’ve written before about the ongoing trend of some of the biggest names in retail downsizing. Now I’m seeing how brands like Target, Wal-Mart and Office Depot are rolling out smaller new store formats in urban environments, and it has me thinking about how this downsizing phenomenon might be even more important than many people realize.

From what I’ve read lately, the difference between a traditional Office Depot and the new, smaller urban concept being rolled out is significant: At around 5,000 sq. ft. the new urban stores are about one fourth the size of the traditional stores. Target’s new City Targets, the first wave of which recently opened in Chicago, Los Angeles and Seattle, are sized at around 80,000 sq. ft. to 100,000 sq. ft. — about half the size of a standard Target. I see these retailers’ willingness to radically alter their store size as a pretty big deal. To overcome all the logistical and operational complications that often accompany the process and to consider a much smaller inventory, to me, is an indication that they’re really open to changing their way of thinking.

While the smaller stores are designed to address one of the traditional headaches of operating in densely developed urban areas — namely, the physical limitations and lack of space — other issues exist. Cities are still generally demanding higher rents (in some cases much higher rents) and will continue to present zoning and operational complications that pad sites in the suburbs do not. Basically, it would seem that national brands have reached the point where their saturation of many suburban markets has now made the untapped urban markets more appealing and worth these potential headaches.

What’s really interesting to me is the fact that, by nature, these smaller urban stores will have to carry a much more limited inventory — both because of their smaller size, but also because of the unique requirements of urban shoppers. Not only do urban shoppers like to get in and out quickly (no different than most of their suburban counterparts), they’re also more likely to prioritize the portability and efficiency of the products they purchase. Urban shoppers are less likely to have the room to transport or store that economy-sized pack of toilet paper. And, the size of the home furnishings they look for will vary, too. It’s not likely an outdoor dining set containing a large table and eight chairs will fit on the balcony of an efficiency apartment, so the size of the products being offered will require much less space on the showroom floor.

Inventory control is nothing new for retailers. It’s a process that began for many when recessionary pressures made tighter inventory controls a necessity. This urban downsizing could help retailers take their inventory control one step further and really edit their offerings based on the actual needs of the consumers, and not the perceived needs (think even more micro-merchandising by location). I think the retailers with these smaller urban stores can (and will) get creative and will ultimately figure out more ways to save space that can translate to their non-urban stores as well. Which is when the trend of downsizing could get even more interesting. After all, editing your inventory doesn’t have to be a bad thing. As I’ve mentioned before, I think it can actually be a real positive for some retailers. I’ve seen a number of restaurants, both casual and fine dining, have success with focusing on a few select items and offering a limited menu. Doing a few things really well — at least in some select locations and circumstances — just might be a trend with some legs.

It will be interesting to see how these smaller urban locations perform. I think their success might have us asking ourselves, “Are smaller, more efficient layouts just an urban phenomenon, or are they the wave of the future for all markets?

What do you think? Please make a public comment below or feel free to e-mail me privately at [email protected].


Click here for past columns by Jeff Green.

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Staples indicates weakness ahead

BY CSA STAFF

FRAMINGHAM, Mass. — If Staples is a proxy for the health of the U.S. economy don’t look for conditions to improve any time soon.

Staples reported weak second-quarter results Wednesday morning and shared a bleak outlook for the remainder of the year. That’s bad new not just for Staples shareholders, but for anyone looking for signs of economic improvement as Staples has exposure to businesses of all sizes. If economic conditions were improving it would be evident in more robust demand for the type of products and services offered by Staples.

Instead, the company said second-quarter sales declined 6% to $5.5 billion and earnings per share fell a whopping 28% to 18 cents compared to 25 cents the prior year. The earnings decline wasn’t quite as severe if a one time $21 million tax refund received during the second quarter the prior year is excluded. Excluding the tax benefit earnings per share only declined 18%. Either way, not a good showing for Staples and a troubling commentary on the health of the U.S. and European economies.

“Our second-quarter results fell short of our expectations due to softer than expected sales trends in North America and ongoing weakness in Europe and Australia,” said Ron Sargent, Staples’ chairman and CEO. “We continue to build momentum in categories beyond office supplies, but these improvements were more than offset by weakness in computers and core office supplies during the second quarter.”

Sales in the company’s North American Delivery units fell 1% to $2.4 billion as the company lost two large contract customers. North American retail sales declined 3% to $2 billion and same-store sales declined 2% with results negatively affected by fewer customers visiting the company’s stores.

Lower sales of computers, software, and computer accessories were somewhat offset by growth of copy and print, mobile phones and accessories, and facilities and breakroom supplies, according to the company. Staples ended the quarter with a total of 1,915 stores in the U.S. and Canada after opening four stores and closing five.

Things were even bleaker on the international front where sales of $1.1 billion reflected a decrease of 18% in U.S. dollars and a decrease of 10% in local currencies.

Economic weakness drove declines in the company’s European delivery businesses, as well as a 9% decline in comparable-store sales in Europe. Staples ended the quarter with 375 international stores.

Due to the weaker than expected second quarter showing, Staples revised its outlook for the remainder of the year and now envisions slower growth in the United States and continued weakness in Europe.

“We’re taking a hard look at each of our businesses, and we plan to make significant changes to improve results,” Sargent said. “We’re also building a plan to reallocate resources, take advantage of our best growth opportunities, and drive increased cost savings.”

The company expects full-year sales to be flat compared with the prior year and full-year earnings per share to increase in the low single-digits.

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Rock Hill Galleria, Rock Hill, S. C.

BY CSA STAFF

Rock Hill Galleria has unveiled plans for a number of large-scale developments slated for the 470,000-sq.-ft. regional mall.

Entertainment destination Revolutions will open a 66,640-sq.-ft. location at Rock Hill Galleria, featuring 30 state-of-the-art bowling lanes, a lazer maze and arena, bumper cars, arcade, restaurant and bar, sports theatre, plus live music and dancing. Opening is anticipated for winter 2012.

As well, Belk is investing $6 million on a total remodeling and 20,000-sq.-ft. expansion of its fashion department store. Construction will begin early next year with a grand re-opening slated for fall 2013. The project will allow the store to expand merchandise assortments and offer new brands and styles of fashion apparel, shoes, accessories and home merchandise. The store will remain open throughout the expansion and renovation.

“We’re completely updating our store to give it an exciting modern look and feel that will enhance our customers’ shopping experience,” said Bill Roberts, chair of the Belk Northern Division based in Raleigh, N.C.

J.C. Penney, which has expanded its Rock Hill Galleria store size from 51,600 sq. ft. to more than 83,000 sq. ft., celebrated the grand opening of its Sephora store-within-a-store, added as part of the retailer’s latest prototypical update. Penney is scheduled to host a grand reopening celebration later in the year.

“The addition of Revolutions, along with the expansions of the Belk and J.C. Penney department stores, are positive steps in re-energizing the retail and entertainment offerings at the tri-county’s only enclosed shopping center,” said Chris Maguire, CEO of Cypress Equities, the Galleria’s developer and managing agent.


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