The Incredible Shrinking Store

Big stores were a function of distribution. There was enormous lag time from concept to cash register. Stores simply don't need, for example, 18,000 pairs of jeans on hand with tighter production. The longer the merch sits, the more likely it is to be shopworn, out of fashion or stolen. Small formats are the future indeed.

Who knew retailers like ACE were the right models all along? How a Home Depot or Lowe's cuts their behemoths down to fit the new reality will be very interesting.

Bob Phibbs, President/CEO, The Retail Doctor & Associates

Bigger stores were a function of the natural inclination to think "we can sell anything" when times are flush. Now, the reality is, you can't. Your customers don't want infinite selection of non-core merchandise ... they want you to be you. The interesting question is whether retailers will go from guardrail to guardrail, moving into smaller boxes that are productive now but limit long term growth. Let's hope not.

Jonathan Marek, Senior Vice President, Applied Predictive Technologies

To Jonathan's point, a move to a smaller box could pay off if it is managed within the context of a multi-channel world. RSR is currently surveying retailers on cross-channel, and my favorite question in the survey gets to cross-channel content - do you promote your website in the store? Do you offer greater availability of merchandise online or in-store? You can shrink the store size and even focus down the assortment, but if you balance it with online availability, then it can be done wisely and not just reactively to the times.

Nikki Baird, Managing Partner, RSR Research

If big box retailers can wring more productivity out of smaller footprints, why not specialty retailers? Call it what you want (rationalization, optimization), we call this movement "curating vs. collecting." After years of trying to be all things to all shoppers, spinning off and extending brands to the limit, retailers are expressing a point of view through editing. Big stores in mall environments tend to feel like echo chambers. Smaller footprints allow retailers to create a more intimate, branded environment that looks like where the action is even during lower traffic periods.

Carol Spieckerman, President, newmarketbuilders

For the last three decades, driven by easy credit, retail selling space has grown 3-5 times faster than population growth. In the last decade, ecommerce has exaggerated this imbalance. This was masked by an equivalent growth in consumer debt loads as the family savings rate dropped from 12% of income (1970) to -1% of income (2007).

With the collapse of the credit bubble and the personal savings rate rising, this supply/demand imbalance is moving back towards equilibrium with a vengeance. Put simply, there is way too much gross selling space (and inventory) chasing way too little gross demand. This is not an economically viable operating model. We've seen the first wave of closings of marginal players along with major reductions of operating expense to protect profitability. These are all necessary first steps, but the long term answer is for balance to be restored between demand and supply. Smaller footprint stores are part of, but not the ultimate, solution. The ultimate answer is significantly less retail selling space - period. There is already a growing number of "Ghost Town Malls." Expect more to follow. As to what will go into this space, who knows?

Bill Emerson, President, Emerson Advisors

The Mall - it would seem - is in a pall. Adding more smaller stores to create a more intimate experience sounds favorable providing in the aggregate all the smaller stores act as a magnet in drawing lots of consumers to the mall.

To be or not to be? Will we see the fall of the mall?

Gene Hoffman, President/CEO, Corporate Strategies International

This seems to be an example of inadvertent sustainability thinking. There are, indeed, lots of reasons for retailers to head to a smaller footprint - but they all seem to fall under smart thinking with a sustainable practice foundation. Want to sustain your relationship with your customers in the 21st century? Present more curated (a great term, Carol) wares in smaller stores that are within walkable communities. If "green" or "sustainable" feels too touchy/feely or granola to you as a business person, fine - don't even bring it up in your discussions. Consumers may not call it that either - but they are surely heading down that road of expectation.

Andrea Learned, President, Learned On, LLC

Is this a good time to make my oft-repeated point about "energetic" connections with customers? In short: It's not the size, it's the energy.

We endlessly debate big box/small box. The problem is the "box" part. We insist on treating retail as a purely mechanical operation. Of course the 'mechanics' need to be there but that's what you have to ante up just to be in the game. What wins the game is the energetic experience felt by the customer.

There are big boxes like our local Costco, Lowe's and Home Depot that I go to just for the heck of it. Good energy. This is the same energy found in our small box Total Wines or Trader Joe's. What I hate to admit is that I drop into these high energy shops even when I don't need anything in particular. It's like getting a fix.

Ian Percy, President, The Ian Percy Corporation

This "trend" is actually one that has been going on for a long time with mall based retailers. The various divisions of The Limited started doing this a decade or more ago.

It is more a function of mature companies right-sizing their footprint to match sales performance than a trend. The article mentions just two companies - Gap Inc. and Ann Taylor who are shrinking their mall footprint. Then it goes on to discuss Aeropostale who is increasing their footprint. The real issue is who is performing well in malls and who is not.

The article makes no mention of Forever 21, that is opening stores ranging from 40,000 sq. ft. to 100,000 sq. ft. in malls. This retailer formerly operated stores of 10,000 sq. ft. or less. This trend has equal significance to what is going on with Gap Inc. but garners no attention.

John Fox, Principal, Fox Real Estate Advisory

If smaller boxes are the new normal, why hasn't anyone told Forever 21?

'historymystery'

You can have a lot more small stores, closer to where the shopper IS, than with a few big stores. So this allows getting closer to the customer. But this is also an aspect of SKURAT, pruning the long tail to allow a better focus on the big head of merchandise that, you know, actually sells enough to make a big difference.

The problem is that the long tail is VERY ATTRACTIVE to shoppers, except when you hide the big head amongst it, essentially compounding the problem of finding what the shopper wants. It may take a while, but this is where the merger/convergence of online and offline retailing will achieve huge advances. Attract them to the store with a half million SKUs, with maybe only 10,000 actually in the store. The rest - colors, sizes, alternatives - readily available for delivery to your home, ultimately in a few hours, but for now, in one or two days.

Herb Sorensen, Ph.D., Scientific Advisor TNS Global Retail & Shopper, Adjunct Senior Fellow, Ehrenberg-Bass Institute

The trend toward smaller stores is not so much positive or negative as much as it is essential and unavoidable. When sales were healthier, retailers became much more lax in managing their inventories, and so needed larger footprints to house all of the breadth and depth. In the process, they designed and built showplaces which were intended to create presence and command a customer base.

The Recession has demonstrated that their showplaces were no match for dramatically altered economics. No retailer can afford unproductive inventories, be it in breadth or depth. Inventories are much tighter, and that's not likely to change anytime soon. Not only do these retailers not need all that space anymore, they can no longer afford to carry it.

Ted Hurlbut, Principal, Hurlbut & Associates

Bigger stores require more inventory and that means more store level inventory management. In the past, larger locations had no allocation problems and filling and merchandising a store could be done. Simply put, we had stock and people to merchandise it.

Now we are talking about tighter margins, less traffic, increased overhead and shrink. It becomes harder to manage a larger location. Lower allocations mean thinner looking stores. Then you get labeled as a brand that has no stock. Retailers should have organic formats that can be easily adapted to current market situations.

Doron Levy, President, TheMortgageMachine.ca

Although there are a number of forces at work here (improved logistics, online shopping, etc.), for the two retailers mentioned, I would say the explanation is simpler: they don't need as much space because they aren't selling as much as they once were. One can try to put a positive spin on it, but I think selling the idea that a 9000 sq. ft. space is superior because it's "intimate" will be even harder than selling the merchandise.

'notcom'

For the merchant, it isn't a matter of positive or negative, it's a question of meeting the current level of demand.

For the first time since the Depression, the United States has undergone two consecutive years of declining consumption. The long term trend will be toward a more steady but marginal rate of growth - more like Europe's economies.

For merchants, it's a matter of backing down store size to meet this new level of consumption while trying to improve profitability.

For malls, it's not good news. It means more individual spaces to lease, more tenants to manage and more leases to administer -- all of which raise their operating costs.

Doug Stephens, President, Retail Prophet

I think some of these comments are not taking the customer into account. One of the benefits of larger stores is wide aisles. Merchandise can be displayed more effectively and is easier to see. Brushing against other customers and getting in each other's way can more easily be avoided.

The idea that a more intimate store environment is somehow better misses the point that people, and not just big people, like to have space. For every shopper who likes an "intimate" experience I can show you one who likes freedom of movement.

John Fox is correct in his point about Forever 21--there are just as many retailers going to larger formats as there are going to smaller ones. And the larger format retailers have the strongest sales growth. e.g. H&M, Inditex, Topshop and Uniqlo--all the fastest growing retailers in the world. Now look at the retailers getting into smaller formats--Gap, Ann Taylor and co, the moribund lifestyle retailers of the 90s.

For the weaker retail chains, smaller stores represent the victory of the bean counters over the customer.

Michael Baker, Principal, Michael Baker Independent Retail Consulting