Saturday, September 24, 2011

BIG or small?

Just 3 months until Christmas eve....


from my email:

Stores Reversing Big-Box Trend

The belief in retail that bigger is better may be fading. National chains known for their huge stores are starting to think smaller.

Big-box retailers are moving away from the one-large-size-fits-all strategy to a philosophy of getting more out of smaller spaces and assessing the needs of each location.

Wal-Mart Stores, whose Supercenters typically encompass over 185,000 square feet, has announced plans to build a number of 30,000- to 60,000-square-foot stores.

Many other big-box retailers -- including Best Buy, Office Depot, Target, Kohl's and J.C. Penney -- are looking to downsize existing stores, said Howard Davidowitz, president of Davidowitz & Associates, a national retail consulting and investment banking firm in New York.

"It's the biggest retail trend in the U.S. -- almost everybody is downsizing," he said.

Some chains are looking to downsize existing stores, while others are planning to make future stores smaller, Davidowitz said.

In Houston, Office Depot, Best Buy, Old Navy and Ashley Furniture HomeStores are among the chains looking to downsize existing stores, said Ed Wulfe, chairman and CEO of Wulfe & Co., a retail development and brokerage firm.

"Almost all big-box retailers are reassessing store size," Wulfe said. "It's different than 10 years ago when bigger was better." They're looking at ways to better utilize their space and get more sales per square foot, he said.

Subleasing strategy
Department stores, including Sears, are seeking opportunities to sublease space in their stores, he noted.

Gary Seals, CEO of Hill Country Holdings, the owners of nine Ashley Furniture HomeStores in Houston as well as Ashley stores in other cities, said his company is considering decreasing the size of its stores by subleasing space to other retailers.

"It would have to be a good fit," Seals said.

Ashley would adapt to a smaller space by taking slower-selling merchandise off the floor, Seals said.

His Houston Ashley stores vary from 30,000 to 45,000 square feet in size, and he's considering downsizing by anywhere from 6,000 to 15,000 square feet, Seals said. He leases the Houston properties.

He said he feels no urgency to downsize.

"We're bullish on Houston," Seals said. "All of our stores in Houston had double-digit increases for Labor Day," compared to the same time last year.

What consumers want
Craig Johnson, president of Customer Growth Partners, a consumer research and consulting firm based in New Canaan, Conn., sees the national downsizing trend being driven partly by consumer demand.

Consumers are looking at quicker, easier shopping experiences, rather than navigating 190,000-square-foot super stores, Johnson said.

"Retailers want smaller stores, but more stores," he said, so that consumers will be more likely to find one no matter where they go.

Best Buy, for example, has been opening kiosks at airports, he noted. There are seven Best Buy kiosks at George Bush Houston Intercontinental Airport, said Chad Stiernagle, the company's director of automated retail. The machines offer iPods, cameras, phone chargers and other items.

In many cases, the wish to downsize stems from pressure to cut costs, said Kenneth Katz, a Houston commercial real estate broker, whether it's due to increasing competition from online retailers or more sluggish consumer demand.

Retailers such as Target are planning smaller future stores because they are going into more urban locations where it's harder and more expensive to buy larger tracts of land, Davidowitz said.

Target is planning smaller-format stores that will be 60,000 to 100,000 square feet, compared with 135,000 in a traditional Target, company spokeswoman Amy Reilly said.

All the smaller-format Targets will be located in urban areas and, unlike more traditional Targets, will feature windows and have multiple floors.

Most suburban Targets are owned by the retailer, whereas urban stores will be leased, Reilly said.

"Many of our customers live in the city and drive to our stores in the suburbs," Reilly said. "We'll be bringing the Target experience to them."

The first four urban format Targets will be in Chicago, Seattle, San Francisco and Los Angeles, and they will open starting in summer of next year. Target is initially focused on 10 markets.

Retail giant Wal-Mart has announced a major downsizing strategy, saying it will build hundreds of smaller stores over the next three years in rural and urban locations.

Inventory in the 30,000- to 60,000-square-foot stores will include groceries, health and beauty items and limited general merchandise, and some will have pharmacies, according to a company statement.

Opening up options
Mindy Kramer, Office Depot's director of public relations, emailed comments from Kevin Peters, the company's president of North American retail, explaining why Office Depot is considering trying new store formats.

"Smart retailers are finding ways to shrink their footprints," Peters wrote, and "the smaller footprint strategy" provides Office Depot with new growth options, including the opportunity to enter new and remote markets.

Office Depot could reduce store size from 24,000 square feet to about 15,000 to 17,000 square feet, Peters wrote.

The preferred downsizing strategy for many retailers is to renegotiate their existing leases, allowing their landlords to get space back, said Lance Gilliam, managing partner of UCR moodyrambin, a retail real estate brokerage firm.

When landlords are unwilling or unable to reclaim space and reduce the size of a tenant's space, retailers will seek subtenants, said Gilliam.

Subleasing can be challenging for a big-box retailer, Katz said.

Retailers typically expect landlords to give them improvement allowances when they move to a space, and they are not used to being in the position of providing improvement allowances for the subleasing retailer, he said.

(Source: Houston Chronicle, 09/19/11)

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