Megastore on the bubble: What shrinking Target And Wal-Mart stores mean
The footprints might be smaller, but some of the latest stores by Target, Wal-Mart and others are covering a lot of ground.
They are, at least, in terms of sales opportunities. The operators of the nation's best-recognized mega stores have been finding success in smaller formats as they maneuver their way into densely populated, physically limited urban areas. The revelation, however, is that these smaller formats do not require an urban setting to succeed.
With digital commerce enabling customers to order online and pick up in store, request specific products be shipped to their preferred location, or choose from an array of other omnichannel services, the actual size of the store seems to matter less and less. Retail is progressively becoming an order-as-you-like it business, and bricks and mortar an increasingly questionable investment.
It causes one to wonder: Is the megastore even necessary?
Shrinking Target, Walmart, Lowe’s
A simple review of how the average consumer dollar is spent can help answer that question. In 2015, e-commerce sales rose by nearly 15 percent over 2014 and accounted for more than 36 percent of total retail sales growth. It was the sixth consecutive year that e-commerce sales rose by nearly 15 percent — or more.
With so many sales taking place on a handheld (or desktop) device, footprints are becoming less important in the customer service strategy. Among the big changes:
Target: The mass merchant known for its affordable, exclusive designer labels began opening small-format stores (less than 50,000 square feet) in 2012 and now operates more than 20. These locations were originally called CityTarget and Target Express, but to eliminate confusion the company dropped the names in late 2015. Now Target is stepping up expansion. In 2016, it plans to open 14 small-format stores, but just one large one. A location that opened in Queens, New York, in mid-July, covers just 21,000 square feet. Additionally, Target has entered into a development agreement with CVS to potentially build small-format stores, according to Target’s annual report.
Walmart: The world’s largest retailer has been exploring small-format stores for years. Its Neighborhood Market stores, which average 42,000 square feet, date back to 1998. In 2011 it opened two Walmart.com stores in Southern California malls, designed to show off its online efforts. And, also in 2011, it began rolling out Walmart Express stores in neighborhoods for shoppers making quick, fill-in trips. The Express concept was not designed to answer to the evolution of omnichannel services, however, and it struggled. Walmart abandoned the Express store in 2016, partly because of competition from Dollar Stores, experts surmised. Today Walmart operates 667 small-format stores.
Lowe’s: The do-it-yourself chain in 2015 opened two diminutive stores in Manhattan — just 30,000 square feet compared with an average of 110,000 square feet — as part of a growth strategy that includes urban locations. Aware of the potential challenges (Home Depot had earlier opened, and then shuttered, a series of small stores), Lowe’s studied Manhattanites, their contractors and plumbers for 18 months, according to Bloomberg.
Mall anchor stores (Sears, J.C. Penney, etc.): The shift in consumer spending is evident in shopping malls, as well. An increasing number of former department store anchors, having been abandoned, are being replaced by unconventional tenants such as hotels, by several smaller merchants, or a combination of both. Many mall operators now favor small tenants over large ones.
Europe Feels The Squeeze
Meanwhile, in Europe, a tight economy is forcing shoppers to eschew giant weekly shopping trips in favor of shorter, more frequent visits.
The result: a desire for smaller, convenience-style stores. Locations that operate outside of cities, requiring a drive and an investment in time, are declining in popularity, according to British news reports.
As a result, leading chains including Tesco, Sainsbury's, Morrisons, and Waitrose are opening smaller stores to compete. Carrefour, Europe's largest retailer, in April reported a slight decline in its first-quarter European same-store sales as the business "continues to struggle to get its core hypermarket format motoring once again," reports Retail Week.
Retail of tomorrow
Where all these changes lead retail will have less to do with size than with connecting, however, regardless of location.
Shoppers may be channel-agnostic, but when it comes to experience, they can be reverent. They do not care how the retailer makes the item available, only that it is available, when and how they want it.
The future of retail will be faster, more customer-specific, more cost-effective and even greener. Increasingly, the industry will be managed by individuals who make specialized items that can be ordered from anywhere. Unlikely partners will match up, and mega stores could transform into mini-malls or experience centers for their key brands, much in the way department stores have treated cosmetics for years.
Many major names likely will fall away from the landscape.
What’s clear is the path of retail has rarely been a straight one. The best we can do for its future is to learn by following in its footprints.
Bryan Pearson Bryan Pearson is President and CEO of LoyaltyOne Inc. and the author of the best-selling book The Loyalty Leap: Turning Customer Information into Customer Intimacy. www