The Big Shrink

In recent posts, I've covered a major dilemma facing many retailers, namely the glut of selling space relative to a weak and uncertain demand.  To recap, there are over 100,000 malls or one for every 3,000 people.  There is over 1.4 billion square feet of selling space in America.  This translates to 46 square feet for every man, woman, and child.  In Europe, that equivalent metric is around 2.5 square feet.  Meanwhile, e-commerce continues to grow by double digits every year with no end in sight. 

Simply put, too much space is chasing too little business.  All this space takes, among other things, a lot working capital (inventory), a lot of payroll expense to cover the space and a lot of markdowns, lowering overall profitability.  On average, anywhere from 10-30% of most national chain's locations operate at a loss.

It appears that many  retailers have begun to address the situation.  A recent Wall Street Journal article outlined steps taken by some of the bigger national players.  These include:

• Sears has gone into the sub-leasing business, leasing space to Whole Foods in one store as well as a Century 21 store in another.  Sears is offering deals on its web site for virtually all its locations.
• Best Buy is venturing into new categories, including musical instruments and health and exercise equipment in its big box.  They have also announced that they are slowing the growth of the big box format to focus on much smaller Best Buy Mobile locations.
• Wal-Mart is experimenting with Walmart Express along with much smaller (40,000 square foot) traditional store formats.
• Home Depot is selling off portions of its huge parking lots to fast food and auto repair shops.
• Gap, which used its flagship to spin off separate formats (GapKids and Gap Body) is now reversing the process, bringing these spin-offs back under one roof.

Interesting.  In addition, there was a story on CNet that Apple, one of the most productive 4-wall retailers is lowering store inventory (and working capital requirements) in order to increase the area devoted to customer training for all the new iMacs, iPads, and iPhones they are selling.  This is not an entirely new idea nor is it restricted to electronics.  Williams-Sonoma offers cooking demonstrations, some golf equipment stores have extensive indoor driving ranges with professional instructors, Home Depot offers courses on various DIY projects, and CVS has added in-store clinics.  In each case, the brand and the shopping experience is extended and customer loyalty is built while reducing space and inventory.  No small matter in an environment where building market share is the only real growth vehicle.

Is this a strategy that can be applied through other channels and formats?  Maybe.  What is certain is that there is too much space and inventory chasing too few customers and this imbalance is relentlessly moving back to equilibrium.  Just in the last month, Borders and Loehmann's have gone into bankruptcy.  More are sure to follow.  While this is a daunting time for retailers, it is also an exciting one.  There has never been a higher demand for creativity and extraordinary new strategies.  It will be fascinating to watch this period of retail history unfold.

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StrategyThe Big Shrink There is too much retail selling space chasing too little sales demand.  This space requires working capital (inventory), payroll expense to cover the space, and drives excessive markdowns to clear the inventory.  Most national chains have anywhere from 10-30% of their locations operating at a net loss.  Here are some examples of retailers facing the situation and taking steps to address it.  Read More The Big Opportunity Estas listo? Retailers, more than most, tend to focus on next week, next month, and, on rare occasion, next season.  This is the nature of the business.  The risk, however, is that major shifts in the retail environment can happen unnoticed and major opportunities can go by uncaptured.  There is such a shift underway today and most retailers are not focused on it in a thoughtful, tangible way.  That shift is the rapidly growing importance of the Latino population on the retail marketplace. Estas listo?  Read More 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?  Read More Filling in the Gaps For three decades, retail selling square footage grew much faster than the population.  The financial collapse of 2008 brought about a sharp reduction in consumer spending, which brought this extraordinary imbalance into stark relief.  Returning to a supply/demand equilibrium brought on a wave of retail closings that produced huge amounts of empty retail space at very attractive prices. What's going to fill this space?   Read More What Localization Means Many major retailers are in the midst of or have already launched initiatives to "localize" assortments.  What, exactly, does localization mean and what are the key elements to success?  Read More Welcome to the Ghost Town Mall - the future of 4-wall retail Driven by cheap credit, retail selling space has grown at a 4-6X multiple of population growth.  This imbalance was masked by the explosive equivalent growth of consumer debt and a precipitous drop in household savings, which went from 12% of income in the 1970s to -1% of income in the mid 2000s. The financial collapse of 2008, among other things, brought this retail selling space/population imbalance into stark relief.  There is now 46 square feet of retail selling space for every man, woman, and child in America, a figure over 20 times the equivalent in Europe. What does this mean for the future of 4-wall retailing in America?  Read More Riding the Gen Y Wave The Gen Y population is 110 million.  This is almost 50% larger than the Baby Boomer generation.  Their average age is 20.  As they age into their acquisitive years, they will change retailing in America. What should retailers and category managers consider as they prepare for this coming change?   Read More What's Next The "Roaring Zeros" have drawn to a close with most retailers and customers muttering "Good Riddance".  It was a decade with extraordinary ups and downs that ended on a clearly down note.  So what happened and what's next?  Read More The Disappearing Boomers The Baby Boomers, defined as those born between 1946 and 1964, are getting older, entering retirement age, and preparing to live on Social Security and investments.  They are already spending less.  This is the largest single population bloc, representing 36% of the adult population.  Their spending cannot be replaced by the generation behind them, which is a third smaller in size.  What should retailers and product manufacturers be looking at to prepare for the implications of this trend?  Read More