Rebirth for the Big Box?

Earlier posts here have discussed the glut of retail selling space in America.  The big box stores in particular, with their cavernous space, large inventories, and associate headcount are particularly stressed as they adjust to the "new normal" of lower aggregate demand caused by chronically high unemployment and the ongoing reduction in consumer debt loads.  As I've asked before - what's going to happen to all this space?

Sears, which has watched its performance fall relentlessly for years, is testing an alternative use of space in its Costa Mesa, California location.  Sears is entering into an arrangement with Forever 21, the successful apparel and accessories chain, to take up to 43,000 square feet of the store to create the largest "store-within-a-store" in Sears', if not the industry's history.  This is not a new step for Sears, which has Lands End and, in some stores, Edwin Watts golf shops.  The big difference here is the size of the footprint, which represents 14% of the store's total space.  The other big difference is that Forever 21 will have its own outside entrance with specific signage.

On the surface, this seems like a win-win arrangement.  Sears gets a much-needed boost to its dismal space productivity along with a built-in traffic builder and a draw for a customer segment that they have struggled to attract.  Forever 21 gets (potentially) access to over 800 locations, some with great demographics, along with potentially lower occupancy costs, better terms, great parking, etc.

But this also raises a host of interesting questions.  The key question - is this a straight merchandise purchase or a sub-lease?  Will Sears staff the space or will Forever 21?  Who will manage this staff? Will there be separate fixturing for the the space?  Who pays for the build-out?  Will a separate entrance provide a meaningful increase in traffic for Sears?  Even if it does, will the Forever 21 customer buy anything else in the Sears assortment?  If this is a straight merchandise purchase, the Lands End experience does not bode well for either partner.  If, however, Forever 21 manages their space (and destiny), this could be a real winner for both sides.

The biggest question, of course, is whether this move represents the beginning of a whole new approach for the big boxes to improve their flagging productivity and profitability for stores that were built when there was much higher demand.  Will the big boxes evolve into "mini-malls" of new and established retailers?  If they do, what does this do to the brands of both the big box retailer and the smaller occupants?

What do you think?

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