Photo: RetailWire
Is excess space behind retail’s shrink and customer experience problems?
Many of us have had the experience of walking into a big box store where there are no employees to be found. In fact, there are plenty of reports that connect America’s excess retail square footage with the “retail apocalypse.”
Now, I’d argue that American retail is going through more of a resurrection than an apocalypse, and the 0.3 percent increase in consumer retail spending last month supports my claim. Yet, it is true that the U.S. is undeniably over-stored, with 2,360-square-feet of retail space per 100 Americans.
Paying to rent unnecessary space can definitely eat into a retailer’s profits, but that’s not the only extra expense that retailers incur when they bite off more square footage than they chew.
Large, under-staffed stores create an environment that is rife for retail theft. The National Retail Federation (NRF) reports that shoplifting causes more shrink losses than any other factor, accounting for 36.5 percent of retail’s total in 2017. However, NRF reports that when it comes to staffing loss prevention officials, “There is a sizeable gap between what is expected and what is needed.”
It’s not just a lack of LP officials that are cutting into retailers’ profits. Understaffing is another big problem that is particularly evident in big box and department stores. RetailDive reports that, “A third of customers who experienced a problem at apparel stores were not able to locate sales help, and six percent of all possible sales are lost because of lack of service.”
Yet, when retailers make budget cuts to increase margins, they often fail to look for ways to shed unnecessary rent costs. Instead, they look for budgetary wiggle room by cutting billable hours for loss prevention officials and hourly employees.
Forbes reports that, “In making management decisions about retail staffing, managers tend to focus on the immediate and known costs of reducing payroll and overlook the unknown and uncertain prospects of future gain in increased sales due to more staff in store.”
Smaller stores would mean less space to staff and less space for LP officials to watch over. Would reducing unnecessary floor space make it easier for customers to locate employees, as well as enabling LP officials to better identify and deter potential shoplifters?
Discussion Questions
DISCUSSION QUESTIONS: Would reducing store sizes help retailers minimize losses due to understaffing and shoplifting? Do you see any additional benefits to smaller stores that aren’t mentioned here?
Poll
BrainTrust
Lyle Bunn (Ph.D. Hon)
Strategy Architect – Digital Place-based Media
Min-Jee Hwang
Director of Marketing, Wiser Solutions, Inc.
I have no idea how they arrived at only 6 percent of sales being lost due to too few employees — I’m sure it is much higher. The simple fact that J.C. Penney has 50 percent fewer associates on the floor than they did 10 years ago tells you their problems started long before Ron Johnson. Service takes people. Without service your brick-and-mortar store is just a slower, more expensive version of online.
Modern retail needs a more dynamic approach. What North American retail needs is a more diverse approach. Keep some flagship, big box format stores. But NOT all location have to be flagship mega-stores. Put in smaller-format and even pop-up stores. These give retailers an important physical presence. Then run an omnichannel strategy that lets a customer order an item and pick it up — even from a small pop-up location on their way to work. This should help with the under-staffing problem and help the bottom line.
I think the over-spaced narrative is overdone! It is certainly true that in some sectors there is too much space, but metrics that look at space on an overall basis are often very misleading. For example, the average American will not travel too far for certain products; combine this with the low population density across many parts of the U.S. and you have a situation where you need a lot of stores to generate sales and share. That’s unfortunate, but it’s a function of the market.
Some stores could do to be downsized, I agree. However, those that are downsizing are often those with failed retail propositions. Many Macy’s stores are too large because their retail and product strategy is lacking. IKEA and Home Depot have huge stores, but their strategy is on point.
I think a more balanced truth is that we have too much poor retail space in the U.S. And it’s not going to survive in an increasingly competitive era.
The best parties and events are the ones where you have room to move around but don’t have big spaces between groups of people. There is a comfort zone we inherently have with a filled space, and we form an opinion based on our impression. Too much space with poor experiences suggest decline while too little space with limited experiences suggests a retailer’s lack of focus and desperation. Yes these are generalities, but every space has to deliver a satisfying experience of discovery and fulfillment.
YES to all of your call outs. In addition, smaller store size would also force retailers to confront one of their long standing and ongoing maladies — the deep belief that “more is more.” More malls, more stores, more square footage, more customer choices, more emails, more and deeper discounts. All of which is creating more prior season inventory hanging at the back of the store. The “more” that is needed now is more focus and discipline. Better storytelling. Sure, the process of store closings is under way, but are retailers going to rethink HOW they make best use of this reduced space?
For the first time in history, most major retailers are true multi-format operators, even dollar stores. The trick is to create a balance between small, medium, large and even temporary and permanent spaces. Beyond this there is an opportunity to fine-tune assortments, particularly in small formats, to determine which categories and products make more sense in bricks and which are viable for clicks.
Loss prevention and asset protection teams should play a role here – using data and collaborating with merchandising teams to make better decisions on the front end rather than just catching bad guys. Setting a profitable “stage” in stores and shaping consumer behavior across all touch points is the new frontier. It’s time to give loss prevention/asset protection a seat at the big table.
Yes to all of this. America is way over-stored. In the U.S. there are about 23.6 square feet of retail per person. That’s nuts. Australia has 11.1 square feet and the U.K. 4.6. In my opinion, this amount of retail space is not sustainable, and we’re seeing the fallout now.
Another issue is how retailers are utilizing their space. Taking on a modern showroom approach instead of cramming in as much merchandise as possible is a better experience for customers, and makes shoplifting more difficult. Smaller stores, curated product selections, and accessible and attentive staff are all so important. As Bob pointed out, retailers have to treat their online and offline spaces differently. If customers are making the effort to shop in person, they want a great experience with friendly staff. If they wanted to browse your entire product catalog without talking to anyone, they would go online.
I think these are PWC numbers! Unfortunately, they are highly inaccurate.
Based on 4.6 square feet per capita (which was the PWC number for the U.K.), in 2015 total floor space would be 302 million square feet. Yet the top 20 U.K. retailers have 229 million of space between them. The grocery players alone have 122 million! In short, the U.K.’s figure is a lot, lot higher than suggested.
Plus raw numbers do not take account of geographic differences. The U.K. is a small, crowded island with high population density and low drive times. The U.S. is the complete opposite. More stores/space are needed to cover the population.
I am not saying there are no issues with space/capacity in the U.S., but some of these numbers (put out by firms that are supposed to be good with numbers) are just wrong!
They are PWC numbers! Guess I can’t believe everything I read on the internet. 🙂
America is undoubtedly over-stored — it has excess capacity and many retailers have too large stores for the new world. However, to say they should simply shed that excess is easier said than done. Property owners are not falling over themselves to take back space because the cost of restructuring real estate can be large, as seen from Marks & Spencer’s results out earlier today. It is a long haul and one that needs to be thought through carefully. Another option is to look at the space and see if there are alternative uses rather than try and dispose of it. There are many new start-up retailers that may be interested in taking space in a well-run store that will take away the burden of space.
Also, it’s true that staffing becomes an issue however retailers do not always look at their traffic flows or customer needs when they schedule their staff. Getting staffing right is another part of the equation, it is not the answer to the overcapacity problem in the U.S., but it is one that each retailer needs to address.
All I could think about as I read this article is what it’s like to shop at a suburban Macy’s. The second floor generally has only one or two associates to manage 10+ departments, an impossible task, especially when you are anchored to the cash register. So other than ringing up a sale, there is no customer service.
Sure it’s easier for smaller retailers to provide better service and in-store experience, but even then it’s not something that automatically happens. A smaller footprint would definitely help decrease shrink and improve service in larger stores, but downsizing a giant store isn’t always an easy task. I agree with Bob here: 6 percent of possible sales lost because of lack of service seems awfully low.
I’d be curious to see the breakdown of growth/decline segmented by the size of the store, i.e. is the 0.3 percent increase driven by large or small format?
A key area not addressed that I believe to be the primary factor impacting whether we see large format store growth is changing consumer behavior. In particular, I’m interested in variations based on region and the shift towards independent brands.
Large-format had been dominant in previous decades due to convenience, availability of product and economies of scale/price (in some cases). With the maturation of online, large locations will struggle to be successful playing the “only game in town” card.
Throw into the mix that today’s consumer is actively looking away from national brands and that consumers in different regions (even cities) have materially different preferences and this results in a big challenge to profitably stock, sell-through in large format stores.
The statistic I love to lead with was from L2, “Between 1970 and 2015 malls grew at twice the rate of the human population.” This is still an issue being dealt with by developers and PE groups, but that’s on the supply side. The composition of the individual stores’ bloated floor plans and sprawling inventories is a remnant of that era that is much trickier to fix. As populations (Gen Y/Z) are shifting more towards urban cities where smaller store footprints are the norm, the suburban outlets that already struggle to find talent for the shop floor experience a compounding effect: no staff, way fewer customers, but still the same costs. Unless the retailer can give back part of their oversized footprint to the shopping center (which is happening in some cases), they need to focus on repurposing that space for non-sales to generate awareness and interest through events or product demonstrations — just as examples. They then can create a sustainable area for sales management and LP risk, while attempting to attract new customers.
Interesting premise that larger format retailers may be contributing to theft. There are many other ways to thwart theft that involve technology, controlled access displays, etc. so I believe this challenge could be effectively overcome.
On the other hand, I definitely agree that the consumer experience — and lack of available staff — has greatly diminished the consumer experience. And that smaller format stores with well-trained and friendly, accessible staff give these retailers an edge over the bigger box operators.
If brick-and-mortar is to remain relevant to shoppers, there are three things I would advocate for: 1.) EXPERIENCE — there has to be an advantage of going to a physical store and it has to delight shoppers (think Wegmans or Ulta Beauty); 2.) EXPERTISE — whether with in-store staff readily available to help consumers navigate purchases or technology-enabled solutions, information must be at a shopper’s fingertips; and 3.) EXPECTATIONS — assortments that appropriately meet the needs of the intended shopper has become essential. Relevance matters!
Many of the things that shoppers would have normally purchased in large stores are now easily obtained online. For example, home air filters. I used to buy them at Home Depot. Now, however, I can easily find the needed size online and have them shipped to me.
Smaller stores won’t necessarily reduce losses. Rather, it is the set-up and the shopping experience provided at physical stores. They need to have a reason for being. Otherwise, the space is wasted.
Changing store sizes without fundamentally rethinking what the store needs to be is a bit like shuffling deck chairs on the Titanic. That building close to where the customer lives needs to be:
Can it be smaller and less expensive to run? Sure, but not without considering new capabilities like some AI-supported Virtual Reality to support the presentation of that endless aisle of non-resident product, new fulfillment capabilities to get the non-resident product to the customer’s home same-day and, of course, better curated assortments for the shop floor.
How do you fundamentally change the 100-year-old department store to something new, without fundamentally rethinking that building close to the customer’s home?
I asked the HOW question and you answered it. There are shopping behaviors and processes today that were not even contemplated 10 years ago. It’s about time for Best Use of Space to evolve.
New Canadian Tire ‘Showcase’ Store Shines a Spotlight on Innovative Retail.
With a number of retailers cutting down on store square footage and inviting in others for store-within-a-store concepts, it’s clear that retailers know something has got to give. Smaller stores help retailers attend to shoppers better and have less area to watch over. Another benefit of smaller stores is focus. Shoppers want a curated assortment instead of having a chaotic scene with too many products under one roof.
There is no question that a huge percentage of physical stores are larger than their revenue and product volume demand. However, I think that has just as much to do with effective merchandising as any other factor. The traditional “pile-it-high-and-watch-it-fly” mentality has got to give way to a more experience-driven format.
So before we look to shrink the size of stores because our sales per square foot, shrink and other performance measures are missing targets, we should look at the traffic flow, where people stop to browse, where they actually pick up product to buy, where they pass up, etc. These basic analyses can help determine a more effective merchandising strategy. I can think of at least one global retailer that has wide open floor plans with minimal product in-store but has huge sales floor productivity. It can be done effectively.
I don’t (necessarily) disagree with the premise that understaffing facilitates shoplifting, though I’m not sure the relationship is linear (i.e. going from grossly understaffed to slightly understaffed might not change things), but my response to that is … “so?” Big box stores with minimal staffing developed because they were a good way to move lots of merchandise. There are drawbacks to that approach — (the possibility of) increased shrink being only one of them — but maximizing profit is the goal … it doesn’t necessarily mean each and every expense is going to be minimized.
No. Understaffing is not a function of size, but retail model. It is just like flying on a domestic airline where there are 2-3 flight attendants on a flight. Per square foot, that would appear to offer great service for a great customer experience. However, when you compare it to many foreign airlines, especially premium airlines, where there are at least double the number of flight attendants on the same airline (often for fewer passengers), and the customer experience is superior. We can do the same when we compare a convenience store with 2-3 employees, compared to a larger store (double the size) with double the employees, and the customer experience is clearly superior. The same applies to shrink, customer service, etc.