Technology

Small stores, big footprint: 3 ways retailers can leverage digital tech to optimize small spaces

While digital technology has arguably driven shoppers away from physical stores, it also holds the key to bringing them back. By integrating digital elements into small format spaces, retailers can recreate the online shopping experiences customers crave.

Photo: Generated by AI. Adobe Stock.

October 23, 2024 by Greg Jones — CEO, tutch

The convenience, endless aisles and personalized experiences offered by online retailers have reshaped consumer behavior, drawing customers away from traditional retail stores and towards online retailers.

And with the pandemic bringing in-store shopping to a halt for many months, online shopping quickly became the default choice for many — creating new challenges for retailers.

Despite in-store foot traffic being up 6.5% this year, big department retailers like Macy's, Nordstrom and Bloomingdale's have continued to shutter their doors. That's because unlike their online counterparts, brick-and-mortar retailers need to grapple with significant overhead costs, including rent, utilities, stock range storage and staffing. And these expenses, coupled with the need for extensive physical inventory and the challenge of replicating the personalized online shopping experience, have made traditional store models less sustainable.

Instead, retailers are reviewing their footprint and leaning into small format stores. In these spaces, which are a fraction of the size of big-box department stores, retailers can provide better service and a more curated selection of products without the extra overhead costs.

But even with the advantages of small format stores, retailers still face several challenges. For instance, shoppers still aren't guaranteed the same level of personalized recommendations they get when shopping online. These smaller spaces also limit product offerings compared to larger stores and their reduced backroom size restricts the amount of inventory the store can hold.

So how can retailers address the shortcomings of small format stores while maintaining their core benefits? The solution lies with digital technology.

Here are three ways retailers can leverage digital technologies to optimize small format spaces:

Use AI to enhance the customer journey

Online, retailers have mastered the art of using algorithms to predict customer wants. In-store experiences, on the other hand, often lack this level of customization. While staff can provide recommendations, these interactions can be inconsistent and often hindered by factors like time constraints and associates' lack of detailed product knowledge.

Retailers are attempting to bridge this personalization gap with small format stores. With a more focused and curated product selection, sales associates can better understand the products and provide more detailed recommendations. But unlike larger stores that can accommodate a larger team, small stores often have a lean staffing, meaning that during peak hours or unexpected rushes, associates may struggle to provide personalized service to every customer.

To better support staff efficiency, retailers can incorporate AI technology into their small format stores. With nearly six in 10 consumers (59%) interested in using AI applications when they shop, incorporating this digital technology into the physical retail space can not only bridge the gap between online and in-store shopping, but also provide shoppers with a unique and novel experience they can't get elsewhere – all while freeing up staff time so they can focus on building deeper and more meaningful interactions with shoppers.

From the moment a shopper begins using the AI technology, whether it's on their phone or a store interface, they can receive real-time personalized recommendations based on their current browsing patterns, product interactions and even past purchase history. These recommendations help guide customers towards products that are perfectly aligned with their style preferences.

By identifying upselling and cross-selling opportunities, AI increases customers' basket sizes and further drives revenue. As customers continue to engage with the technology, they'll receive even more personalized product recommendations, further enhancing their shopping experience, driving repeat business.

Digital self-service can help showcase product inventory

Unlike their online counterparts, physical stores have limited space to display product offerings. This is an even bigger challenge with small format stores as they have to constantly rotate display spaces to showcase their entire collection of products. This limitation means a loss on both direct costs — lost sales from customers who can't find what they want — and opportunity costs — missing out on additional sales because they're not aware of the full product range.

With digital platforms strategically placed throughout the aisles, retailers can give shoppers access to their entire product ecosystem, regardless of whether the specific items or sizes are physically available in-store. Shoppers will have the ability to find exactly what they're looking for, even if it's not on display, and even show them products they didn't know they needed — keeping them from leaving the store without buying.

One retailer that has successfully done this is Australian specialty store chain Between the Flags. With locations surrounding world-famous Bondi Beach, Between the Flags is the go-to destination for locals and tourists seeking popular Australian Sheepskin Boots. While its smaller stores were ideal for the beach, Between the Flags found that it was impossible to showcase the entire collection of boots in just 6 feet of available display space. The limited room also made it difficult to track customer preferences for specific styles, resulting in wasted backroom inventory dedicated to slow-selling boots.

To solve for these issues, Between the Flags worked with digital retail platform tutch to place a display with an interactive screen directly near the boots. The platform quickly drew customers in to explore the entire boot collection — available both in-store and online. As the platform began learning more about customers' preferences, it also began making real-time personalized recommendations about other items in the store. As a result, Between the Flags increased its overall revenue by 64%.

Integrated technology can compile insights to track what customers buy

Limited backroom space in small format stores necessitates stocking products that customers actively seek. But it's hard for retailers to do so if they rely on outdated inventory tracking or plain intuition.

With digital technologies such as self-service platforms and mobile devices, retailers can compile insights as to which products customers are buying — and which ones they're not . This way, they can make informed decisions about inventory management, ensuring that popular items are always in stock while minimizing wasted space on slow-moving products.

With Between the Flags, tutch's digital platforms helped them understand which sheepskin boot styles were most popular and which weren't. They were then able to leverage their limited space effectively by stocking the most popular boots in-store while simultaneously offering online ordering for others, leveraging their limited space effectively. As a result, they decreased overall stock holdings by 28% while still offering the full collection for online ordering.

Small format stores have emerged as a viable response to the challenges posed by online shopping. By seamlessly integrating digital technologies, these spaces can offer the best of both worlds: the convenience and personalization of online shopping combined with the tactile experience of in-store browsing. Together, these mark the first step toward a future where the physical and digital retail experiences converge to meet shoppers' demands for a positive shopping experience.

About Greg Jones

Greg Jones is the CEO of tutch, the retail technology company specializing in designing digital platforms that give in-store shoppers access to every product in a retailers’ product ecosystem. Jones spearheads the company’s strategic direction, leading the team as it builds new partnerships with retailers and expands into other markets around the world. He previously served as Global Director, Industry Solutions for Retail and Consumer Goods at Microsoft, and North America Retail and Consumer Goods Lead at Avanade.

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