Archive for the 'Retail development' Category

Is the off-price space already overcrowded?

Any student of retailing has seen segment after segment get overcrowded with imitators and then go through a period of consolidation — from department stores to discounters. Here’s a recent RetailWire comment that elaborates on this issue:

Every time a retail segment gets overcrowded with “me too” brands, a shakeout is inevitable. Between the key players like TJX and Ross, the luxury retailers’ outlet brands, and the new entries like Backstage and Off/Aisle, the market is ripe for consolidation. It’s no different from the waves of brand closures that swept the department and discount store industries, but I do expect TJX and Nordstrom Rack to be among the survivors.

Meanwhile, off-pricers keep expanding their brick-and-mortar footprints (often in other retailers’ closed sites) at the same time that most other big chains are working on omnichannel initiatives. You can argue that the “treasure hunt” appeal of off-pricers doesn’t lend itself easily to e-commerce, but this segment of retail needs to figure it out in a hurry.

Advertisements

Target finds small-format stores are more productive

Today’s RetailWire discussion centers on Target, which is enjoying more productivity in its expanding base of small-footprint stores. I don’t think this is rocket science:

Locating smaller-format stores in higher density areas (especially city neighborhoods) should drive more productivity. If these stores aren’t generating much higher sales per square foot, they are unlikely to be profitable given the higher occupancy costs (rent, loss prevention, etc.). So Target needs to hold these stores to a higher standard in the first place.

That being said, the focus on fewer categories and tightly edited assortments probably doesn’t hurt, either, and might be a lesson learned for the full-sized Target stores. I assume that most of the small-format stores contain much smaller grocery assortments, which is a good thing considering the low margins in an area where Target has struggled.

Groceries are battling too much space too

Excess square footage in general merchandising has been well-documented, especially with 2017’s wave of store closures. The trend hasn’t swamped grocery retail — yet — but don’t be surprised if the advent of online grocery shopping will take a toll. Here’s my comment, from a recent RetailWire discussion:

The grocery business is suffering from the same “overspace” problem that has plagued general merchandisers for years, leading to waves of store closures this year. The retailers in the middle — the old standbys like Kroger — are particularly vulnerable to increased competition from discounters, small-format stores and retailers doing a better job engaging with “foodies” and Millennials. (At least Kroger has a winning concept with Mariano’s in Chicago.)

There is no doubt that shopping behavior is changing. Some shoppers are opting for more frequent but smaller trips for fresher food, while others are bulking up at warehouse clubs. Aldi, Lidl and Trader Joe’s are offering smaller stores with curated assortments, and now Amazon is lurking in the background with its purchase of Whole Foods. As a regular shopper at Kroger’s “Metro Market” chain in Milwaukee, I can tell you that the overwhelming amount of choice (to fill all that space) makes even a simple shopping trip harder than it should be.

While some mid-tier chains are in a better position than others to survive, some industry consolidation is probably long overdue here. Meanwhile, here’s a related post about mall developers looking to fill empty space with food retail:

It’s ironic that we’re talking about food stores taking over vacant mall space today, after discussing excess square footage in the grocery business yesterday. There may be specific malls where it makes sense to add a small-footprint store like Fresh Market, but it’s hard to see how full-line mid-tier stores like Kroger can make this work on a large scale despite its test in Ohio. Presumably the grocery store would be the “last stop” on the shopping trip, if the shopper visits the rest of the mall at all.

The entire issue comes down to mall developers and how they reinvent all that real estate. Southdale (outside Minneapolis) is replacing a JCP store with a three-level fitness center; other malls are adding more dining and entertainment. But pulling off-mall retailers (TJX, Costco) into the fold may be a more viable solution if the price of entry is right.

JCP today, fitness center tomorrow?

The Simon development group is taking a three-level JCP store — soon to close at Southdale Center outside Minneapolis — and redeveloping the space as a fitness center. I’m among the RetailWire panelists discussing this smart “reinvention” strategy that can be applied to malls around the country:

Creating a fitness center out of an existing mall anchor is a creative way to reinvent excess real estate — instead of waiting for another retail tenant or tenants to energe (unlikely) in today’s overspaced environment. I’ve been in the JCP store in question and it was grossly overspaced for the volume it probably generated during the last few years.

Students of retail history (and Minnesota natives like me) know that Southdale was the first fully enclosed regional mall in the U.S. It served its purpose as a retail mecca — and community center — for many years, but the mix of anchors and nearby competition from Mall of America has made it less relevant in its current form. So the Simon team deserves credit for finding new reasons for people to come to Southdale and other malls like it.

Why would IKEA sell its goods on Amazon?

RetailWire panelists engaged in some speculation that IKEA may begin expanding its e-commerce footprint, including selling some of its products on the Amazon Marketplace. Here’s my rationale for the possible decision:

IKEA continues to open physical stores at a very deliberate pace. Here in the Milwaukee area, they are finally breaking ground this month for a store announced last year and opening in 2018 — their first in the market. Yet IKEA has broad name recognition and brand equity among potential customers who don’t live anywhere near one of their stores. Why not expand their e-commerce footprint, especially if the sales data uncovers potential new markets or localized changes in merchandise mix?

Is the era of brick-and-mortar growth dead?

The wave of store closures this year (and beyond) casts a shadow over traditional brick-and-mortar retailing, but it’s premature to declare it a dead end for companies that still have growth prospects. Here’s my RetailWire commentary on the issue:

In business school many years ago, I took a retailing class from a marketing professor who often said, “There’s no such thing as ‘over-stored,’ but under-retailed.” Obviously the glut of square footage is an even bigger problem than in 1977, given the development of exurban sprawl, big box stores, new mall formats, retail consolidation, and (of course) e-commerce. But the teacher’s point still has relevance today.

Some stores continue to have a good chance to expand their physical footprint. (There has been recent comment, here and elsewhere, about chains like Zara and Uniqlo being opportunistic about picking up others’ sites.) But growth for its own sake means nothing without a clear brand identity, coherent merchandising and smart use of technology to drive loyalty and omnichannel initiatives.

CVS vs. Walgreens: Who’s easier to shop?

Upon reading a RetailWire discussion about new store merchandising initiatives at CVS, I weighed in with some recent observations of my own:

Given a switch of insurers last January, I’m shopping less at Walgreens and more at CVS. I’ve always had a problem with the navigation issue at Walgreens: It’s just as difficult to find things in my newly remodeled neighborhood store as it was before. And the overassortment of categories having nothing to do with health and wellness may be good for Walgreens’ position as the “neighborhood convenience store,” but it certainly doesn’t help the customer figure things out.

The competing CVS is noticeably easier to shop, with wider aisles and better directional and product signage. If the company takes its execution to the next level — as reported — it could be part of a broader competitive advantage over Walgreens.


Advertisements