Business News

Big Box Retailers Are Trying to Stay Relevant by Focusing on Small Stores


Two of the biggest names in big-box retail have increased their bets on a growing trend in brick-and-mortar sales: small stores.

Best Buy and Macy’s announced plans this week to add small-format stores as part of a strategy that could help the companies cut costs while meeting customer demand for convenience. They join Nordstrom, Target, Kohl’s and other national chains in downsizing their locations with tens of thousands of square feet anchored by malls and malls, while focusing on more compact and efficient sites. stores.

“Consumers are using stores differently than before,” said Christina Boni, an analyst at Moody’s Investor Services, adding that shoppers want stores that are close and accessible, and often view them as a way to supplement their online purchases with pickups. and returns. “All these things deserve to think about a different box than what it was before.”

Small-format stores offer a modern shopping experience, very different from before e-commerce, Boni said. Consumers no longer discover products by browsing 100,000 square foot stores, they do so on social media and on brand apps and websites.

For example, Nordstrom is slowly growing Nordstrom Local, a store primarily focused on services including alterations, pickups and returns. In 2022, Kohl’s announced the addition of 100 small-format stores measuring approximately 35,000 square feet. Furniture retailer Ikea has at least 26 mini-stores, some of which are just for picking up orders and others that resemble a showroom called “Plan & Order.”

The most recent example is Best Buy, which announced Thursday that it would open small-format locations in new markets and scale back operations in existing ones, although it did not specify where or how much.

This announcement came two days after Macy’s announced that it close 150 homonymous sites to focus on small-format stores under its Bloomingdale’s and Bluemercury brands. In the fourth quarter, Macy’s department store sales fell 2.5% year over year, while sales at Bloomingdale’s and Bluemercury rose 3.5% and 7.8%, respectively, the company said.

The chains adopting the small format strategy are those in categories that “have been under more pressure,” said RJ Hottovy, head of analytics research at a foot traffic analytics company. This includes furniture, department stores and consumer electronics. “These are all of these categories that have seen an uptick in demand (during the coronavirus pandemic) and are now normalizing and maybe realizing they don’t need as much square footage,” Hottovy said.

Store downsizing has been happening across the industry for years, but it has accelerated in 2023, said Brandon Svec, national director of U.S. retail analytics at the company. CoStar Group real estate analysis. New retail leases larger than 25,000 square feet fell 12% from 2022 and accounted for 22% of all new retail space – the lowest share since CoStar began tracking these metrics in 2006, according to Svec .

A notable large retail chain, Target saw the average size of its new leases from 2021 to 2023 decrease by 35%, Svec said.

Smaller format stores can be more profitable because they have lower rents, have less inventory and require fewer employees. But that comes with growing competition for those storefronts, Svec said, as big-box retailers seek the same types of spaces as discount, low-cost and food and beverage tenants in a market with limited stocks. Over the past 15 years, there have been virtually no new open-air shopping center developments, he said.

Downsizing brings a new set of challenges, said Katherine Black, who heads the food, drug and mass retail division at consultancy Kearney.

“The real crux for these retailers is choosing the right products for these smaller format stores and figuring out where it makes sense,” she said. “The more inventory they take out of stores, the more they almost force the consumer online.”

Some retailers, like Best Buy, are also looking to expand into new markets, leveraging the data they’ve collected about their customers to find smaller locations that generate greater consumer interest. Retailers see opportunities to track customers who moved during the pandemic from large urban centers to rural and suburban areas, Hottovy said.

“All of a sudden, these markets with populations under 100,000 are much larger,” he said. found that the majority of households that have moved are higher income, “so when you get these markets that have seen strong growth and higher household incomes, it starts to present a pretty attractive proposition for many retail brands.”


Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button