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After years of supersizing, retailers are backing off from the big box.
The large-scale broadlines stores used sheer mass — 200,000 square feet or more — to grab market share with great efficiency, but offered shoppers an in-store experience that was often unrewarding and confusing. The concept, which has dominated retail for the last two decades, is now being pressured by:
• Competition from the limitless selection online;
• Demographic shifts favoring city centers; and
• A more-controlled consumer who needs to be romanced into a purchase in a more intimate shopping environment.
“We have reached the apogee of the big box,” said Paco Underhill, chief executive officer of behavioral research firm Envirosell. “We can’t grow the store any bigger and get any more time, or money, out of people’s pockets.”
Underhill said fashion retailers are looking beyond square footage and focusing on other aspects of their stores, such as dressing rooms and the use of light or scents as they try to draw shoppers.
It’s a new approach for an evolving consumer. The huge Baby Boomer generation started entering retirement age this year. And the number of women in the workforce continues to rise, having already jumped to 65 million last year from 19 million in 1964, according to the Labor Department.
“One of the things that I love about retail is what made a good store in 1990 and what makes a good store in 2011 are different,” Underhill said. “Retail is actually a very good dipstick to the larger world of social change.”
Today’s plugged-in populace has access to most everything on their smartphones or desktop computers and won’t wade into or spend time in gigantic stores if the experience isn’t compelling.
“We know that the stores, to be effective, need to be attractions,” said Myron E. “Mike” Ullman 3rd, chairman and ceo of J.C. Penney Co. Inc.
Penney’s recently opened a smaller store near San Francisco in Daly City, Calif., and will be rolling out other stores in the 50,000- to 60,000-square-foot range — a much tighter format considering its current fleet of 1,100 doors averages 100,000 square feet. “It’s a function of where the customers live and what their appetite for apparel is,” Ullman said.
Wal-Mart Stores Inc. is opening 15,000-square-foot Wal-Mart Express stores, though it expects much of its growth will continue to come from its Supercenters in upcoming years. Sears Holdings Corp. and Best Buy Co. Inc. are among the retailers exploring subleasing arrangements that will allow them to reduce square footage, with Best Buy making its downsizing intentions known last month.
And Target Corp. held its annual meeting this year in what will be its first store within Pittsburgh’s city limits, one of its smaller CityTarget urban stores. There are five CityTargets planned, starting with a 54,000-square-foot store in Chicago. CityTarget units will measure 60,000 to 100,000 square feet, while its typical stores are between 125,000 and 180,000 square feet.
Gregg Steinhafel, chairman, president and ceo of the retailer, said, “We are planning each of these locations with a very customized and local approach designed to fit the particular trade area.”
Cities are more than just the next frontier for national retailers that have already saturated the suburbs — they are also a newly promising market.
“People are living downtown and people want to shop where they live,” said Mitchell Korbey, an urban planning attorney at Herrick, Feinstein and a former commissioner of the New York City Board of Standards and Appeals. “Stores have discovered the center city and have realized that the center city is underserved.”
Brooklyn, he said, is the size of Philadelphia and is severely understored.
Cities are also being populated by a new kind of consumer animal — WOOFs, or well-off old folks. They are empty nesters in their 50s and beyond who have moved out of the suburbs and taken to the bright lights of the city for their twilight years.
“Planners and real estate people in New York have recognized that there’s this new demographic,” Korbey said. “They’re populating these high-rise buildings on the Upper East Side and the Upper West Side.”
The housing bust and economic downturn have interrupted some broader demographic shifts, but there is a general belief that cities and larger suburban hubs are on the upswing after decades of successive generations spreading out into the suburbs.
“You definitely do have a move back into urbanized areas,” said John McIlwain, senior resident fellow at the Urban Land Institute. “The main demographic drivers are Boomers, particularly the older Boomers, who had been selling their homes up until the recent downturn, and the empty nesters moving into the cities.”
The 80 million-strong Gen Y is also a particularly urban cohort that McIlwain said is likely to rent longer than previous generations. They are also a desirable group given their skills.
“It’s a question of not just the number of people, but whether you’re attracting the people who really drive the new economy,” McIlwain said. “For those cities [attracting Gen Y residents] it is definitely very important that they’re coming in.”
College-educated people in the 25- to 34-year-old age bracket have been flocking to center cities, according to a CEOs for Cities analysis of Census Bureau data, comparing results of the 2000 Census with surveys conduced from 2005 to 2009.
In the nation’s 51 largest metropolitan areas, the number of young college graduates rose 26 percent in city centers, versus 13 percent in the outlying metro region. The city centers — the area within three miles of the central business district — in Atlanta, Baltimore, Indianapolis, Miami and St. Louis all saw increases of more than 60 percent.
Combined with the economic downshift, these demographic changes are a serious blow to big-box stores that have been a major part of the expansion of retail to what many consider to be an unsustainable level. The U.S. had 56 square feet of retail space per capita last year, up from 45 square feet per capita in 1990, according to real estate information company CoStar.
Better edited, more intimate stores might just be in step with the current thrust of society and consumers.
Smaller stores are perceived as more local and authentic, and a narrower assortment can also be more enticing, said Martin Lindstrom, a consultant who has studied the intersection of biology and commerce and wrote “Buy-ology: Truth and Lies About What We Buy” (Doubleday).
In one of Lindstrom’s experiments, consumers were offered their pick from a box of chocolates. When the box had 32 pieces, only 6 percent of consumers took a piece. When the box had eight pieces, 26 percent decided to indulge their sweet tooth.
“The fewer options we have, the more likely we are to buy,” said Lindstrom, noting the brain is simply not hardwired to multitask in that way. “Big retailers have realized this and are thus narrowing down the options.”
The big-box store will no doubt remain a part of the retail landscape, but the shift to smaller stores marks the passing of an age.
“We invented the all-you-can-eat buffet and we stuffed ourselves,” said Steven Greenberg, founder and president of real estate advisory firm The Greenberg Group Inc., who attributed the explosion of big-box stores to “American greed.”
“Give a developer money and he’ll develop a shopping center; give a retailer financing and he’ll open more stores,” he said.
Greenberg cautions clients against growth for growth’s sake, noting that bigger stores lead to higher occupancy costs that can pressure chains to keep driving their business forward to keep up.
In many instances, the large-scale retail space created for an earlier generation will have to be rejiggered.
“This is one of the big questions that the retailer is going to face over the next decade,” said Leon Nicholas, director of retail insights at Kantar Retail. “What do you do with all of this space? Who wants it?”
Big-box stores could become supplemental distribution centers, he said. Macy’s is doing something like this, arranging a small number of stores so they pack and ship goods to fulfill Web orders.
Even if large suburban stores have fallen out of step with their customers, many are in prime locations and have plenty of opportunity, and space, to reinvent.
“When you’re that big, 100,000 square feet, it’s a public space. You should think of it not as a big store, but a small village,” said Ron Pompei, ceo of branding and store design firm Pompei A.D.
The current retail landscape was developed with a close eye to sales per square foot. But Pompei said that lens is limiting and led to spaces that were built for product in mind rather than people. Think of the Apple stores, in many ways the brainchild of incoming Penney’s ceo Ron Johnson, that offer only a few different products, but have lots of open space for people to linger and test new gadgets.
Big-box stores made up of rows of aisles and right angles are predicated on convenience and price, but often appeal to people as consumers only and they don’t engage the imagination, Pompei said.
“We have to recalibrate that and understand that we’re actually more complex,” he said.
Certain growing chains, such as Forever 21, are using their retail momentum to move into bigger stores. However, by and large there is a resizing that might be driven by economics but is leading to a conceptual shift for retailers.
“It used to be a world where the store was in the center much more and people would go to the store,” said Michael Dart, senior partner at consultancy Kurt Salmon. “Right now you have the consumer in the middle and you have retailers, wholesalers, technologies all trying to reach that consumer.”