Perhaps Bigger is Not Better – Small Stores Make a Comeback

As retailers report fourth quarter earnings, a troubling but not so surprising story is emerging – brick & mortar retailers are in trouble. Declining foot traffic thanks to changing preferences and shifts towards online shopping are a part of the problem but perhaps part of the problem are the stores themselves. Remember the old adage “Bigger is better” as we witness the growth of big box stores?

According to a recent Wall Street Journal article, Kohl’s noted that the fast pace of digital sales has resulted in the company to rethink its store base. As such, Kohl’s plans to close some of its stores while opening smaller ones. Categories that have a high level of digital demand will have less space in these smaller stores.
Meanwhile Target is taking an interesting approach. It seems it wants to be everywhere and is adapting its stores to fit various locations and lifestyles. For example, the company plans to up the number of its TargetExpress stores to nine this year. These stores average 20,000 square feet in size and are located in urban areas. CityTarget stores are a bit larger than TargetExpress ones but still smaller than the typical larger Target and are located in high-foot traffic locations. According to a press release, the difference is that CityTarget provides smaller pack sizes for customers to carry home easily. To simplify the confusion of these new store-fronts, the company announced in August 2015 that it planned to rebrand TargetExpress and CityTarget as ‘Target’. Thank you.
Another retailer looking to go smaller is Macy’s. Quick to embrace omnichannel retailing, Macy’s seems to have struggled in trying to figure out who its target audience is. In the process, discount stores such as Marshall’s and TJ Maxx have been poaching customers by offering discount prices on popular brands. So, if you can’t beat them, join them and so Macy’s is introducing smaller-format discount stores to do just that. These stores will sell clearance goods from Macy’s department stores along with merchandise from top brands made specifically for the smaller stores. This actually sounds like an updated version of the once popular outlet stores of years past.
Lastly, who can imagine a “small” IKEA? Well, it’s underway in various countries. Averaging in size between 20,000 square feet to 40,000 square feet, these stores also serve as pickup points for IKEA’s online sales. The stores are also equipped with tablets, enabling customers to make in-store purchases on the Internet.
As we witness a reversal from big box retailer to smaller stores, the supply chain will need to adapt. More stores may equate to higher transportation costs for retailers for example. In addition, Macy’s and Target’s strategies could result in the need to carry more inventory and source from more suppliers, thus higher costs as well. Will smaller stores help increase foot-traffic? An even bigger question is can smaller stores compete effectively against online retailers such as Amazon?
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