Retail’s Shrinking Waistline
Smaller Format Stores Appeal to Consumers, Bottom Line
Real estate may be all about “location, location, location” – but when it becomes a drain on the bottom line, it may be time to rethink strategy. That is why some big box and mega chain retailers are unveiling or expanding smaller format stores in urban settings or lifestyle centers.
Walmart, Target, and Kohl’s rose to the top on their low price/big selection reputations. But the recession was hard on their customers: sales dropped and recovery was slow as shoppers looked for deeper discounts at nearby dollar stores. On top of that, the U.S. urban population increased by 12.1% from 2000 to 2010, according to the U.S. Census Bureau. Building more destination super stores began to make less sense.
The Retail Design Institute’s Brian Dyches, international president, says the faltering economy forced retailers to question the need for space and depth of inventory.
“Growth is no longer in the reckless abandon phase of the ’90s,” Dyches says. “The real strategy driving smaller formats was about the costs related to real estate, employees, and inventory.”
Consequently, stores realized plenty of consumers do not want to drive for miles to suburban or outlying areas to reach big box chains — or spend a lot of time navigating them. More than half of all consumers (52%) say they “love or enjoy clothes shopping,” according to the Cotton Incorporated Lifestyle Monitor™ Survey, but they are busy people with limited time and energy.
According to Monitor data, consumers shop for clothing in stores an average of twice per month and online about once each month, and spend 108 minutes shopping for apparel online, versus 98 minutes in stores.
Deloitte LLP’s Alison Paul, vice chairman and retail & distribution sector leader, says consumers are voting with their feet.
"Consumers like the boutique element of smaller format shops and are pleased to see select merchandise or limited edition offerings."
The Tom Julian Group
“As they age and become more time constrained, they do not want to walk to the back of a 300,000-square-foot store,” Paul says. “Nor do they have the energy or the time to shop row upon row to experience a ‘wow’ factor of a great new color or style.”
Tom Julian, trend expert and founder of the Tom Julian Group, a retail consultancy, says even though a smaller format location might not have the selection of a larger venue, it is a distinct way for retailers to reach more elusive, and perhaps lucrative, consumers – urban, resort, millennial, boomers and seniors.
“The mechanical elements are sometimes more impactful for a retail brand too — the best of departments come to life, and that allows for a purer connection with the consumer,” Julian says, pointing to the resort-wear focused Brooks Brothers store in Tucson and the 1969 Gap specialty shops.
One-fourth of consumers shop for most of their clothes at chain stores, followed by mass merchants (23%), department stores (15%), and specialty stores (13%), Monitor data reveal.
Consumers say their favorite apparel stores are Kohl’s (13%), followed by JC Penney (9%), Walmart (7%), and Macy’s (7%), according to the Monitor.
In March, Kohl’s opened seven stores that are less than 64,000 square feet, compared to the 90,000 square feet of its full-sized units. Target has been opening CityTarget stores that range from 60,000-to-100,000 square feet, compared to the full-size stores that range from 128,000-to-135,000 square feet. And Walmart has been expanding its 30,000-square-foot Walmart Express units, which focus on grocery, but have general merchandise. This compares to their supercenters, which range in size from 78,000-to-260,000 square feet.
Sports Authority has opened S.A. Elite stores, which range from 12,000-to-15,000 square feet, as opposed to the full-size 40,000 square foot units.
Deloitte anticipates that by 2015, department stores will have 5%-to-25% excess square footage, while specialty retailers will have 10%-to-45% excess space. Paul says many leading retailers are already shrinking their square footage by 3%-to-18%, due in large part to e-commerce. “By 2015, $175 billion will shift out of stores to online purchases.”
The National Retail Federation’s Dan Butler says the footprint of the smaller stores serves customers better because it gives them services closer to home that they might not otherwise have.
“These formats wouldn’t necessarily work in rural communities because they’re spread out,” Butler says. “Smaller formats like Walmart’s Neighborhood Markets are more than a quick stop convenience store, but they’re small markets that work really well. In big cities, they can serve many more customers if they can come up with a footprint that works in a metro area.”
The smaller footprint means the assortment will not be as broad; while that could inspire consumers to move online, experts do not see that as the sole outcome.
“Consumers like the boutique element of smaller format shops and are often pleased to see select merchandise or limited edition offerings,” Julian says.
Butler admits apparel assortments will be narrower, “but they’ll go with the items 80% of customers buy.”
Paul says today’s in-store technology can help retailers extend their assortment without the expense and complexity of managing additional inventory.
“Retailers are rethinking the brick and mortar store, using it as a ‘brand experience’ for building customer loyalty while maintaining the assortment customers are looking for — all in a smaller box, with fewer locations.”