U.S. stores have an identity crisis. The big ones want to be smaller, the small ones are getting bigger and all of them want to sell more food.
For years, U.S. retailers could simply build more stores, the larger the better, near new developments to spur sales growth. These days, as suburban communities have lost their luster and more people stay in or near cities, that formula needs a make-over.
“It was just all about new store expansion and I think we’ve come to a tipping point,” said Steve Caine, a partner in Bain & Company’s global retail practice.
At the same time, larger store floor plans are becoming less necessary at some chains, as shoppers buy everything from appliances to shoes online. Retailers whose main categories have not yet been overtaken by the likes of Amazon.com Inc want to avoid the fate of a Circuit City or Borders.
“That is encouraging people to think smaller and then the need to get into the urban cores will bring, on average, most retailers’ store sizes down,” Caine said.
Wal-Mart Stores Inc and Target Corp are among those slimming down to fit into cities such as Chicago.
“A lot of these more mature companies that have thousands and thousands and thousands of stores have really kind of maxed out where their format can actually go,” said Chris Donnelly, a senior executive in Accenture’s retail practice. “In general, I think what you’re seeing is more that retailers are desperately searching out that next area of growth than it is an attempt to be everything to everyone.”
Chains may wish to make a drastic overhaul, but existing leases and business plans make that unlikely. The various formats are expected to survive, albeit with some tinkering.
“If they could wave a wand, a lot of them would completely reconfigure their stores,” said Donnelly. “They’d probably close a lot of stores and the remaining stores would be smaller.”
Food has become more prominent at a variety of chains, as it brings shoppers in more frequently, driving sales gains.
“When you’re trying to steal share it’s about doing what your competitors do, but better, or layering in new businesses,” said Caine. “It’s a little bit of a redefinition of what you are in the customer’s mind.”
Wal-Mart, founded when Sam Walton opened a discount store in 1962, did not get into the supercenter business until 1988.
After years of selling lots of general merchandise, discounters such as Wal-Mart added groceries to bring in more shoppers, leading to the rise of the supercenter.
Now, drugstores and dollar stores are adding more food to increase their sales, as Walmart and other chains go on a bit of a diet to figure out how to fit into tight spaces.
Wal-Mart is testing urban and rural Walmart Express stores that are 10,000 to 15,000 square feet — or less than one-tenth the size of a supercenter’s historical average of about 185,000-square feet. New supercenters are being slimmed down to as small as 90,000-square feet.
Target is expanding in cities by going from a typical 135,000-square foot store down to 60,000 to 100,000-square feet. It will open its first CityTarget store in downtown Chicago next July. Outposts in Los Angeles, San Francisco and Seattle are also set to open in 2012.
Walgreen Co is primping its stores with beauty tricks it learned from its 2010 acquisition of Duane Reade.
A handful of shops now offer services such as eyebrow shaping — also offered to shareholders for free at Walgreen’s annual meeting — along with upscale displays that mimic those in department store beauty departments. At the new Duane Reade on Wall Street, women can even get haircuts and manicures.
Emphasizing food, which people buy frequently, can lead to more visits. Wal-Mart is building more Neighborhood Market grocery stores, Target is adding larger fresh food selections to several existing stores and drugstores such as Walgreen now sell everything from bananas to sushi.
For some chains, adding food also adds square feet.
Dollar General Corp is opening and remodeling more of its Dollar General Market stores, which add fresh produce, meat and other refrigerated and frozen foods to an expanded lineup of low-cost merchandise. Still, it only has about 60 of those stores out of nearly 10,000 U.S. stores overall.
The Market stores, typically 16,000 square feet compared with the usual 7,200 square feet for a regular Dollar General, are posting Dollar General’s highest same-store sales increases this year, Chief Executive Rick Dreiling said in August.
In early November, it will host grand openings for five new Dollar General Market stores in Las Vegas, the first new Market stores since 2007 and the chain’s first stores in Nevada.
Tweaking formats is not just a move for public companies looking to boost shareholder value.
Meijer recently opened its first Meijer Marketplace store in Melrose Park, Illinois, which at 90,000-square feet is less than half the size of the private chain’s traditional stores.
The store, with a large grocery section and other goods, does not carry shoes, outdoor furniture or some other items that take up lots of space in large supercenters.
“Our interest in trying to adapt the size of our store is coming more from a recognition that communities are going to grow inward, not outward,” said JK Symancyk, Meijer’s executive vice president of merchandising. “This, in the end, is less about a magic formula of square footage, it’s more an exercise in localization.”