The Downsize of Retail

Prophesies of the retail apocalypse have been widely exaggerated. Big box retailers aren’t dying and neither are malls. However, things are changing. Companies are realizing that with the surge of omnichannel sales, there isn’t nearly as much of a need for larger stores. Instead retailers are changing the way that spaces are used in-store. Best Buy, for instance, opened in-store Dyson shops. Retailers are playing with the idea of creating more showrooms, where it’s all about the experience instead of the actual purchase. Apple calls their stores “Town Squares” because they want to create a public domain for workshops and programs. Brick and mortar stores aren’t going anywhere, they are simply changing to keep up with the advancement of technology. How will this affect retail in the long run?

Does Downsizing Keep Retailers Aligned with Competitors?

Considering that e-commerce has severely disrupted traditional retail, stores must change with the times. No longer is it necessary for consumers to walk into a big department stores. They can buy from their phones, or from their computers. Brands such as Toys R Us made a mistake of relying solely on its massive amount of stores and failed. Going smaller means that retailers are really thinking about space, and their consumers.

For instance, Target is opening several new smaller stores across the nation in an effort to reach new consumers. These smaller stores can cater toward the neighborhoods in which they are introduced. Kohls is partnering up with competitors Amazon and Aldi to increase revenue and foot traffic. By changing the way that brick and mortar stores work, retailers are competing with e-commerce rivals. More and more retailers are opting for showrooms, where people can try on or demo products before purchasing. Those purchases will go to their homes, thereby adding the convenience of online shopping. It’s all about enticing people to come into stores.

How Much Does Location Matter?

Location is incredibly important. While e-commerce has definitely disrupted retail sales, rising rent and lack of retail space has also been a factor in the closing of stores. Smaller stores are thriving despite the fact that big box retailers are not. Smaller locations mean access to areas they had not been able to reach before. To succeed retailers must focus on the target demographic of the neighborhood they are in, whether it be urban moms or college students. Target has been doing well in this endeavor, tailoring the customer experience to the locals in the area. This goes a long way in creating a revolving door of customers that will return for their next purchase. Downsizing means a smaller inventory which means that there won’t be nearly as many discounts. It will create an urgency, or “fear of missing out” which will increase revenue.

Pros and Cons of Downsizing

Retailers have plenty of reason to downsize. Smaller stores means cheaper rent and a wider reach into previously untapped neighborhoods. Places where they couldn’t find real estate before are now able to accommodate. Smaller inventory sizes also cuts down on the cost of maintenance. Less stock means products are replenished faster than larger retailers, and new products quickly replace old ones. Some retailers, such as Nordstrom, Bonobos and others are working on showrooms. Showrooms cut the cost of employee retention, due to less turn over rate since positions are more involved than the usual retail store.

Downsizing from massive department stores doesn’t come with out its fair share of difficulties

Walmart opened several express stores starting in 2011 but were forced to close them all due to low revenue. Apparently consumers couldn’t comprehend the concept of a small Walmart. They were so used to the massive expanse of choices and products that there was no draw to the Express stores. Aside from poor location choices on part of Walmart execs, changing the public perception of big box retail brands may prove difficult. Though in comparison, Target seems to have gotten the hang of it, finding profitability in their CityTarget and Target Express stores. In concern to the rise of showrooms, there is a possibility that the hyperfocused attention on consumers might alienate younger shoppers who prefer anonymity. It may also find there’s trouble selling certain apparel items, such as socks and t-shirts that can be purchased cheaper online.

Retailers simply have too much space. It’s not just e-commerce that has created this shift. Downsizing has been coming for a long time due to the increasing lack of space. The retail industry has been slow to change and only now is catching up with the times. New stores will be emerging that emphasize customer service and experience instead of purely purchases. People will buy in-store and get their things at home. The more fun and convenient shopping becomes, online shopping will become less of a perceived threat and simply a part of a whole integrated omni-channel experience. Smaller stores will be the norm, compared to the large excess that we currently have. This isn’t the retail apocalypse. It’s just another evolution.

Sharon Shichor is the CEO of Eighteen Knowledge Group LLC, your solution and knowledge base for brand building and getting your products and services in the hands of consumers.

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