Retail Tries Out Smaller and Smarter Layouts

Big names in retail have been struggling with traditional formats. Too much space can be an economic drag on a location, making the attainment of profitability a challenge. Rethinking the format of stores into smaller locations can reduce expenses while concentrating sales more efficiently.

Moody’s Analytics CRE looked at some examples. Macy’s announced a new strategy called “Bold New Chapter” after a 5.5% fall in annual sales. The company will close 30% of its “unproductive” stores by 2026.

“As part of the plan, Macy’s will open at least 30 Bluemercury stores, the company’s smaller footprint luxury beauty retailer, as well as roughly 15 Bloomingdale’s, a luxury retail brand that also operates in smaller stores than typical Macy’s locations,” they wrote. “Macy’s strategy entails not only a pivot from its middle-class target customers to its luxury brand and higher income demographics, but it’s also a downscale from a massive department store format to something that can fit into a community or even neighborhood center.”

Macy’s used to attract middle-income customers. But other stores focused on the top (luxury stores) and lower ends (discount), with e-commerce adding convenience. The smaller format allows Macy’s to move away from malls and closer to consumers “and provide curated merchants and experiences through omni-channel shopping.”

Similarly, Whole Foods is planning five Whole Foods Daily Shops in New York City, each running from 7,000 to 14,000 square feet in size. “Its downscale from full-size grocery and the elimination of a salad bar and meat counter are expected to sufficiently compensate for popular grocery delivery services like Instacart,” Moody’s wrote.

Other retailers like Joann Fabri, which filed for bankruptcy yesterday, haven’t taken to the same shift. The company “failed to sustain consumer loyalty, lower market leverage, or mitigate rising credit and operating risks are now on the blink of bankruptcy.” It is worth wondering whether Joann could realistically use a smaller format. Collections of fabrics and other materials require significant space. It’s unclear whether there purchases by their customers are concentrated enough around a smaller number of core choices, along with the space needed for tables to unroll and cut fabric, for the format to work.

As Moody’s noted, there is a loss with the disappearance of “cultural icons.” But ultimately retail needs to “reinvent, innovate, adapt, and ultimately thrive.”

Net Lease Spring:

Held April 16-17 in NYC, Net Lease Spring will bring together hundreds of dealmakers from the nation’s top firms. This year’s program will feature 5.5 hours of face-to-face networking and over 5 hours of content focused on micro and macro trends for 2024, being resilient through market volatility, how to serve your corporate tenant clients and much more! Learn more or register here.