Is the Retail Footprint Getting Smaller?

Baby Boomers and Generation X are known for homes in the suburbs and weekly car trips to big-box retailers to fill up the family station wagon or SUV with stuff they didn’t need. Fast forward to the Millennial Generation, and it’s apartments, no car, and little storage space. It was only a matter of time until retailers had to make a change, or millions of dollars would be lost in stagnant inventory.

The Trend of Downsizing in Retail

Trips to big-box retailers located on the edge of town are too inconvenient for many millennials. Instead, they shop online, or by a few items at a store close to their apartment. As a result, companies like Walmart, Target, and Wells Fargo are drastically cutting their footprint. In 2017 Target opened about 30 smaller stores, focusing on inner-city areas.

According to projections by Kantar Retail, smaller stores are growing at an annual rate of 3.9 percent, compared to big-box stores which are crawling along at .8 percent growth. Stores that are under 20,000 square feet make up over $612 billion a year in sales and are estimated to grow by an astounding 21 percent in the coming five years.

The Need to Reduce Cost

Another thing forcing the trend of a smaller retail footprint is the need to cut costs. As retail space in urban areas reaches a premium and operating costs continue to skyrocket, retailers must adjust.

Wells Fargo is working on a smaller format business model that will allow it to reach a new demographic of micro markets that aren’t appropriate for its traditional larger branches. The new set-up is about only 1,000 square feet, compared to its typical 3,000 to 4,000 square feet models. To make it efficient, they feature paperless workflow and other changes. The 50% reduction in operating expenses frees up reserves that can be used elsewhere.

Shifting Consumer Expectations

One of the apparent problems though of a smaller footprint and reduced inventory is that Americans are accustomed to shopping in megastores that have tons of varieties of toothpaste, dog food, and socks. Today’s shoppers have to adjust their expectations away from a wide selection of goods on the shelves.

Consumers in these smaller retail stores shouldn’t expect to be able to pop in and out unnoticed either like they can when they wander through an 80,000 square foot Walmart. More individualized attention is a result of smaller square footage, and not all shoppers are comfortable with it.

Is the Shift Here to Stay?

Trends come and go, and it’s hard to know if the change to smaller retail stores is here to stay. Walmart tested smaller “Express Stores” beginning in 2011, but recently announced that it was scrapping the idea and closing all 102 of them. The Express Stores were about 15,000 square feet each. Its newest focus is on slightly larger neighborhood stores that average around 40,000 square feet, compared to its 180,000 square feet Super Stores.

Ultimately, it’s the consumer that drives the trends in retail stores, and they vote with their dollars. Only time and revenue will tell what shoppers want.

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