BrainTrust Query: My Pre-pandemic Pathology of ‘Formatitis’
Through a special arrangement,
presented here for discussion is a summary of a current article from Newmarketbuilders’ Right
Brain of Retailing blog.
Although "small" and "urban" are
the location-based terms most often used to describe the numerous emerging
formats U.S. retailers are developing, they fail to fully explain the diversity
that is taking shape.
With that in mind, I’ve created the following three
segments that sort out the pathology of the coming "formatitis" pandemic:
1. Proliferation – Penetrating new markets with smaller footprint stores and
fighting scale with scale.
Variations: Smaller footprint stores are where urban, and — let’s
stop leaving this out — rural areas, really do come into play. Walmart’s
Express and Target’s City Target concepts fall into this category, but
don’t
assume these stores will be "mini" versions of the mother ship.
Although consumables will no doubt take center stage, it’s hard to predict
which categories, brands, and even packaging sizes will gain ongoing placement
and, as these concepts get fine-tuned, assortments will continue to mutate.
Aftermath:
Drug retailers, dollar stores, and hard discounters, such as Aldi, will feel
the heat. Greater store density will intensify price transparency and more
neighborhoods will become "walk-able."
2. Specialization – Capturing new niches and saturating key categories
Variations: Expect to see an influx of separately-branded specialty retail
concepts plucked from retailers’ existing private brand portfolios (e.g.,
Loblaw’s
Joe Fresh apparel) or opportunistically launched as stand-alone brands (e.g.,
J.C. Penney’s Foundry Big & Tall).
Aftermath: Spin-off specialty stores
will change the existing specialty store landscape and potentially siphon sales
away from more generalized competitors. Mega retailers will deploy these concepts
at will and decide how far they will spread as they go along (rather than committing
to rollout plans up-front). Most spin-offs will initially focus on the retailers’
owned brands. However, just as J. Crew, Gap, and other private-brand-based
specialty chains have begun to augment their assortments with select national
and licensed brands, the same may eventually hold true here as well.
3. Localization – Driving loyalty by closely connecting stores with their
communities
Variations: These concepts may be highly customized, as with the all-out,
hyper-local approach used by Whole Foods — where each store has a local "forager"
who pushes for local products and a community advocate whose role is to immerse
the store in all types of neighborhood activities — or formatted, as
with the newly-refined "palettes" that are guiding Starbucks’ new
store designs ("Heritage," "Artisan," "Concept," and "Regional
Modern").
Aftermath: Much has already been stated about big box retailers
putting "mom-and-pop" stores
out of business. A rush of highly-efficient, hyper-localized concepts could
pose an even greater threat to business as usual and woo a new generation of
shoppers. I often talk about the reality of retailers being brands. In the
future, individual stores will become their own brands and the concept of "retailer-as-brand"
will continue to evolve into "location-as-brand."
Consider yourself inoculated!
Discussion Questions
Discussion Questions:Â Which format trend identified in the article holds the most potential to transform U.S. retail? Which categories or channels will be affected most? Given over-storing concerns, is there “room” in the U.S. market to support the creation of these concepts?
Well, Carol, as you stated at the end, I am now inoculated. I just don’t know what I am inoculated for since I don’t fear or foresee your erudite “formatitis” pandemic.
The future of retail store formats will relate to changing rhythms in the ever-revising marketplace as heard by savvy, contemporary retailers. Such retailers will create their own “brand” for their served environment. Thus all three of your propositions fit somewhere.
The smartest national retailers are experimenting with all three trends, which is good news for the evolution of the industry in order to grow beyond the saturation of big boxes. It’s hard to argue that category dominance, satisfying market preferences or developing lower-cost (and more flexible) footprints is a bad thing. Best Buy, Target, Walmart…the list of leading retailers experimenting with new solutions to drive topline growth goes on and on.
The strongest is proliferation. The other two are notable but carry with them issues of execution and sustainability.
Niches are just that and require careful distinction between a true niche and a trend. Without careful execution and the ability to shift and remain nimble in this area it carries a lot of room for failure.
Localization is tricky. There is a real difference between looking local and being local. Sure, box retailers have destroyed a lot of community participation from the retailing segment. However, looking loyal or local to the community is a lot different than being a part of it.
Gene is right (as usual).
Best-in-class retailers exploit new market opportunities and experiment with “new formats” all the time. In fact one could argue that format change often occurs more regularly inside the walls of existing stores than it does in the larger market.
Successful retailing always changes in response to myriad changes in the external environment from economic conditions and changes in the pop culture zeitgeist to broad and subtle demographic changes and competitive market entries and exits.
You can map, graph, label and otherwise characterize these changes any way you want but one salient fact remains after all the categorization is done–retailers who remain stagnant in either their offerings and/or formats don’t survive for very long in today’s competitive environment.
Like Gene and Richard, I think all three trends have their place in retailing’s future. We all learned the retailing has cycles (some we recognize at the beginning and other later on). The variations in formats mentioned are part of those cycles.
Large formats store find there is a need to go small to fit into urban markets or because they realize the volume isn’t there to support the bigger box. Others realize that a house brand has gathered enough momentum to perhaps stay on its own which allows them to develop a smaller footprint specialty store. Others see a value in being seen as part of the community even though they are owned by a corporation based somewhere else. All are retail concepts that may prove to be valid not just for their current practitioners but for others in their competitive set. Ultimately the consumer will decide the winners and the losers.
I’d actually say “all of the above” in terms of transforming retail. Plus, don’t forget, much of this ‘formatitis’ comes from having to REDUCE the size of your existing footprint, which plays to the over-storing concern. The Gap is in full swing with their new format look AND size (smaller) as an example of that.
And the idea of customizing your store and assortment is long overdue in my book. What got us in trouble in the first place was the cookie cutter mentality of the ’90s. Stack it high and let it fly. No more.
Localization! PETCO figured this out with their Unleashed concept. Each Unleashed store will have its own Web page, allowing local pet owners to brag about their furry friends, share advice, and have a place to mingle. All politics is local, and all retail is, too.
OK, so I get to be the contrarian….
The only one of these (potential) trends that makes any sense to me is the first one, proliferation. Let’s start with the fact that the business model for just about every national retailer is based on scale and volume. That makes a specialization strategy of pursuing new niches highly problematic. The very concept of market niches challenges concepts of scale and volume. And many of these retailers have spoken about localization over the past half decade, but have struggled with the economics. Again, it runs contrary to scale and volume.
Shrinking footprints of existing formats makes the most sense, because it can be worked into the operating model of scale and volume. The challenge, especially in urban locations with higher rents, is to make the four-wall cost structure work for each location.
I think we’ll see many different retailers dabbling in these things, but I just don’t see any major, significant trends emerging out of their efforts.
Probably the most innovative concept I have seen over the past couple years has been the emergence of the “Pop Up Store.” They are significant not only for their immediate impact but also the agility they require from the retailers who implement them. As others have said, all the concepts described here are worthy of implementation in some environment. And also, the successful and “agile” retailers will find reasons to use each format under the appropriate circumstance. The experience of the pop up stores and the availability of open locations has made experimentation and innovation much less expensive.
One other big factor in all this is the Internet. I really believe in the “shop online, pick up at store” distribution model. When you take this idea to the extreme, it makes available an endless assortment online with the convenience (and without the delivery cost) of local pick up. As the advantage of no sales tax is taken away from the online retailers, I believe you are going to see the emergence of more “local agents” who will likely use one of formats discussed to provide local presence along with a limited on site inventory for impulse purchases.
Some seem intent on turning format evolution into revolution. It’s not. Do any of these “new” formats sound a little boutique-y? A little like outlet stores or Men’s Wearhouse? Or the thousands of bodega-like produce-only or meat-only shops favored by some minorities?
And, evolutions eventually become cycles. What’s old is new again, especially to the retailers and consumers who are too young to have experienced the discarded formats of the past. The interest in supposed “formatitis,” as Ted Hurlbut touched on, is more about WHO is introducing new formats rather than the nature of the actual formats themselves. It seems to boil down to this: Traditionally large-formatted retailers introduce smaller formats. Alert the media. Today, with all of our data and analyses, we tend to label, quantify, qualify, justify, and speechify every little retail development.
When ad mgr. for Fleming Foods in Topeka in the 70s, I worked with a collection of grizzled veterans (GVs). One of our annual functions was to caravan out to the hundreds of little IGA stores we supplied – some used card tables as produce departments – across Kansas. Inevitably, as the wet-behind-the-ears designated driver, I’d roll into a small town and ask my GV passengers for directions to the store, but no one ever knew for sure. And just as inevitably, they’d put their heads together and proclaim “that way.” They were always right, because from experience they knew where the store should be. These same GVs were also in charge of selecting locations for new stores because they had a feel for populations, traffic patterns, natural traffic barriers, etc. No computers and barely a scrap of paper. (Gene Hoffman knows what I’m talking about.) Today, decisions about new retail locations and specifications are rightly supported by sophisticated digital analysis. But, it’s still about the right size, location, and offering, and it’s still a crapshoot.
With so much vacant retail space available in the vast majority of US markets, retailers are trying any and all formats to see what works. Most are failing in the long-term. Long-term, traditional formats will have varying success depending upon the segment of retail concerned. Department stores, as a whole, haven’t significantly changed their look for over 70 years (Since the movie, “Miracle on 34th Street” was made). Apparel has tried some innovative formats, and ones like Uniqlo, Forever21 and others have shown that evolution is a good thing.
Bottom line, the formats Carol mentioned are being tried, yet there is no silver bullet for success. The US market is different from European ones in that Americans seem to have less of an attention span for formats. Asia is similar to us in that respect.
Amazon just reported Q1 revenues up 38%. They forecast he year up from 35% to 47%. Maybe that is the format every retailer should be looking at?