Business

Retailers are liking smaller stores over bigger ones, but will you?

Nordstrom Local is the company's latest retail concept and neighborhood hub. The service-focused store has no dedicated inventory; customers shop online with a personal stylist instead. MUST CREDIT: Nordstrom
Nordstrom Local is the company's latest retail concept and neighborhood hub. The service-focused store has no dedicated inventory; customers shop online with a personal stylist instead. MUST CREDIT: Nordstrom Nordstrom

For decades — maybe even a century — the operating philosophy in retailing was that bigger is better.

Thus the local general store and the small Main Street storefront merchant succumbed to the multistory downtown department store, the sprawling suburban discount retailer, the literally “big box” outlet, the 100-plus-page paper catalog and, most recently, the online shopping space, where expensive square footage can be replaced by pixels at a cost so small it can barely be measured.

So stores steadily grew in size, with the enthusiastic backing of customers. Costco’s warehouse stores are 73,000 to 205,000 square feet in size. Walmart’s supercenters average 179,000 square feet. Ikea’s indoor mazes can run to 300,000.

The median size of the American grocery store was 35,000 square feet in the 1990s, and the stores of that era were already bigger than the typical store of the 1960s and 1970s.

The growth trend still had room to run. By 2013, the median sized grocery was 46,500, and since median means half are larger, half are smaller, it’s not hard to find stores that top that midpoint by a considerable margin.

But even stores whose size is measured in football fields can’t hope to match the inventory breadth and depth of an Amazon or even the online component of their own companies. Combine that attribute with the shopping convenience and price breaks that online retailing offers, and it’s little wonder that the bricks-and-mortar-dependent segment of the industry has had a rough go of it for two decades.

Whatever the magic formula is for the physical retailers to survive (assuming for the moment there is one), size does not appear to factor into it.

Thus it’s the era of great experimentation, as traditional retailers shake up not just their stores but their business models. And we’ve got an abundance of local examples to prove it:

Target announced it plans to build three smaller-format stores (21,000 to 49,000 square feet, vs. the typical 145,000 square feet) in two Seattle neighborhoods and in Bellevue. In part, this is making a virtue out of a necessity, given the cost of commercial space in those areas. But if the concept gains public acceptance, Target is likely to roll it out to other markets, such as Tacoma.

What’s the grocery chain that everyone clamors for in their neighborhood? It’s Trader Joe’s, whose stores are a comparatively minuscule 10,000 to 15,000 square feet. By the way, industry-wide data indicate the median U.S. grocery store has dropped in recent years, to 42,800. Might the growth and influence of Trader Joe’s have a hand in that reversal of the size trend?

When Amazon decided to get into the bricks-and-mortar bookstore business, did it build a warehouse-sized retail outlet stuffed with every title it could jam on the shelves? It did not. Its bookstores in Bellevue and Seattle are 4,600 and 5,500 square feet. Borders, the chain done in in large part by Amazon, had stores upwards of 30,000 square feet or more.

The woes of big department stores are forcing mall property owners to get creative and think small. Simon Property Group plans to take out the Sears store at the Tacoma Mall and replace it with space for smaller retailers.

Seattle-based retailer Nordstrom is trying a new concept, labeled Nordstrom Local, which carries no inventory. Instead the 3,000-square-foot store allows customers to try on samples, order online and pick up clothes ordered online or delivered from other Nordstrom stores.

“Small is beautiful” has some advantages, at least from the retailers’ point of view. Aside from spending less for physical space, retailers also get to pare back on inventory. Carrying a lot of inventory poses risks of theft, damage and no one buying it.

Less evident is the public’s enthusiasm for smaller stores. These are experiments, not proven models (except for outliers such as Trader Joe’s). Retailers are going in this new direction not so much because they’re convinced it’ll work as they’re convinced by the numbers that the conventional approaches don’t work anymore.

The public might take some convincing. It has grown up with big retail; consumers like a broad selection from which to choose. True, if they were that enamored with big retail, they wouldn’t have deserted it in such numbers for online shopping. But limiting the selection runs the risk of accelerating the trend if consumers equate smaller with less.

Big will still work in some categories where the items being sold are big and the inventory selection is broad. Hardware and home improvement would seem to qualify (remember the local chain Eagle Hardware, whose marketing and positioning statement was “more of everything”?)

For many others, small is the latest attempt by big retailers to hold on to customers. If it doesn’t work, it’s on to the next experiment, as soon as someone in the industry figures out what that is, and providing they’re still around to try it.

Bill Virgin is editor and publisher of Washington Manufacturing Alert and Pacific Northwest Rail News. He can be reached at bill.virgin@yahoo.com.
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