Retail Embracing Rightsizing by Resizing

The trend of rightsizing by resizing stores is picking up steam. Many retailers are now incorporating small-format stores into their fleets.

Retailers can tailor these small-format stores to target a specific demographic, create a personalized shopping experience, or experiment with a new brand direction, according to a new report from Placer.ai.

Small-format stores can also serve as fulfillment centers for click-and-pay shopping and as a location for returns, all while fostering brand awareness and customer engagement.

And thanks to their smaller size, these stores can help companies expand their reach in urban centers and other highly priced real estate markets while lowering overhead costs.

Placer.ai’s Smaller-Footprint Examples

DSW became more operationally efficient after it created a small-format store, dubbed “Warehouse Reimagined,” in Hedwig Village, Houston. This concept is about 15,000 sq. ft. – or about two-thirds the size of a traditional, 25,000 sq. ft. DSW location. The smaller-format DSW store is attracting significantly more visits per square foot than neighboring DSWs, according to Placer.ai.

Target, known for its super-sized stores, operates over 150 small-format stores, and 25 of which are located on or near college campuses and cater specifically to students. These campus-oriented Target stores range from around 13,000 sq. ft. to 40,000 sq. ft. and carry products a typical college student might need – grab-and-go food, dorm room furnishings, toiletries, and school supplies. Additionally, they serve as e-commerce pickup points for students.

Greenwise Market by Publix carries a highly curated product selection while offering a premium shopping experience with details such as carts with cup holders that allow customers to “sip and shop.” These stores are divided into “experience zones,” including CARE – a beauty and wellness department, and CUTS, a hormone-free meat and sustainable seafood counter.

Market by Macy’s is a small-format department store launched by Macy’s in 2020 as part of a larger restructuring strategy. Market by Macy’s offers a curated array of merchandise with the goal of creating a streamlined shopping experience that gives customers the advantages of department-store shopping in an easier-to-navigate configuration. Unlike Publix’s small-format Greenwise stores, which are designed to promote a more luxurious, and longer-visit shopping experience, Market by Macy’s aims to make shopping “quick & easy.”

Using the Location as a ‘Touch Point’

Virginia Maggiore, Principal, Store Planning, RDC, tells GlobeSt.com, “We have several retail clients that are smaller brands or DTC brands going brick-and-mortar for the first time.

“They are using their physical retail locations more like showrooms, with larger sales floors and a limited back of house,” Maggiore said.

“Customers use the location as a touch point to interact with products firsthand and make decisions on products with customizable options.”

Purchases are shipped directly from the brands’ distribution centers.

“This efficient use of the retail space allows brands to showcase maximum assortment, but not waste valuable space for inventory storage,” she said.

“I have seen a shift in the size of tenant spaces, with landlords now offering a variety of smaller spaces that weren’t available a few years ago. This is making it easier for brands to find lease locations that suit their needs.”

Maintaining Direct Customer Engagement is Key

Laurel Shimamura, Senior Vice President, The Madison Melle Agency, tells GlobeSt.com that where efficiency is paramount and customer loyalty is a core focus, supplementing brick-and-mortar stores with e-commerce platforms can greatly impact the success of retail clients.

For one of her wellness clients, IntoMeSea, the in-person aspects of a traditional spa experience are supplemented by a strong online marketplace.

“Rather than completely scaling down and doing away with the traditional in-person experience altogether, strategically sizing down and building a robust e-commerce presence to support, all while maintaining direct customer engagement, is key,” Shimamura said.

“For The Agency, directing the focus and resources of retailers and merchant shops through strategic and curated initiatives allow our clients to target wide consumer demographics in creative ways.

An example of including diverse initiatives in strategic and bespoke ways can be seen for one of its recent clients Sona Home.

“Bringing the iconic restaurant experience and beloved products into the home supported the expansion of brand awareness and revenue streams, playing on both the brick and mortar and e-commerce aspects of the business.”

Online Sales Require Smaller Footprint

David Larson, partner, Legend Partners, tells GlobeSt.com he’s unsure if the smaller stores are being implemented to increase activity or are a function of increased online sales not requiring the bigger retail footprint.

“Retailers may need to have smaller stores (in their fleet/portfolio) to expand, given the increased cost of construction and escalating rents. These economics are preventing the larger old formats from being economically feasible,” Larson said.

“The uncertainty about what retail will look like in the future continues to challenge retailers as they try to continue to grow their store count. However, given that— implementing a new program today will take a couple of years to see if it works. By the time new formats are open and have some operating history, the retail landscape (and more importantly the customer) may have shifted in a completely new direction.”

Larson said that many big box retailers are also evaluating fewer stores, (even larger formats) and placing them in strategic locations.

“The bottom line is that retailers must experiment with new ways to drive sales,” he said. “Retailers who continue to do what they have always done in the past will experience lackluster annual sales—which never attract public or private investors for future growth.”

Split Spaces Work for Simon Property Group

Laura Schwartz, Regional Vice President of Leasing for Simon Property Group, tells GlobeSt.com that the demand for retail is very strong and vacancy rates are very low, so Simon Property Group is working to maximize big department stores, reduce tenant footprints when necessary, and continue to lease up.

“We are really seeing the benefit of this, allowing malls and tenants to take a larger space and split it into two or three rentable spaces, or even change the use completely into something that is performing stronger overall,” Schwartz said.

“Burlington Mall and Northshore Mall are two great examples where Simon Property Group decided on the major redevelopments of two former Sears box stores – using the new space to add nontraditional tenants such as fitness brands, office spaces, and food and beverage amenities. The goal is to ensure that these projects last long term and stay relevant for years to come.”

Broad Assortment of SKUs Unnecessary

Corey Bialow, CEO, Bialow Real Estate, a national retail tenant representation firm, works with a variety of retail/restaurant tenants across the country such as Indochino, Pet Supplies Plus and Sleep Number; and “eatertainment” including PuttShack and Museum of Ice Cream.

He tells GlobeSt.com that his team is also the go-to for franchisees and corporate concepts such as Teriyaki Madness, Goldfish Swim School and Chill’n Nitrogen Ice Cream.

“We’re seeing many of our clients scaling down their prototype store size,” Bialow said. “Those with an online presence are finding that they no longer need to carry such a broad assortment of SKUs as they’re able to convert existing customers to online shoppers.

“We’re even finding our service-oriented clients are going smaller as a result of extremely high construction costs and rising rental rates.”