Bye, Bye Big Box! Retailers Shift to Smaller Footprints in Urban Markets

Can smaller stores save retail? After ongoing declining sales for many retailers, a lot of fingers are pointing blame on store size. Now, the “smaller footprint” shift is taking over the American retail landscape.

Last week, Target announced a new direction to combat competitors. Its new Manhattan Herald Square location will be 2-levels and about one-third the size of the average Target. The company says it will dish out $7 billion over the next three years in remolding older locations, adding to urban markets, and offering same day delivery.

The Manhattan location is just one of the planned 130 small format stores it hopes to operate by 2019. The chain hopes to renovate over 325 locations next year, 350 in 2019 and another 325 in 2020.

But Target isn’t the only retailer going this route. In 2016, Kohl’s announced plans to make over half of its current 1,100 stores “operationally smaller.” Since then, the retailer has launched about eight small format stores averaging about 35,000 square feet. The swift decision to reduce store size has saved the retailer from shuttering a number of stores. The same can’t be said for competitors.

Struggling retailer Nordstrom recently launched Nordstrom Local. The new concept stores will be around 3,000 sq ft., compared to Nordstrom’s usual 14,000 sq ft. stores. Here’s the thing: none of the inventory will be for purchase. Much like Bonobos, consumers can try on products but will need to order items for delivery. A major money saver for Nordstrom. 

This leads us to the disruptors shaking things up. Digitally native companies like Bonobos,Warby Parker and Rent The Runway have started opening up a number of physical “showroom” stores in urban markets. Like the Nordstrom Local concept, these brands save by avoiding costs associated with excessive inventory.

It’s also about miming local environments in convenient locations. Even beauty brands are joining in. In July, Sephora announced plans to launch intimate boutiques embedded in neighborhoods called Sephora Studio. While Sephora has the experiential nature of its stores to credit for its success, that simply isn’t enough. Calvin McDonald, CEO of Sephora Americas, commented to Fast Company:

“Many, of course, prefer to shop online. Others want to go to a store, but there don’t have time to go to a big shopping center. They want to pop by somewhere closer to home, but many of these shopping streets offer much smaller storefronts than malls.”

While rent may be higher in urban environments, the foot traffic is more consistent. Will more traditional retailers take note?

What does this mean mean for landlords?

  • Subdivide larger big box buildings into smaller spaces
  • Raise rents
  • Offer flexible leases

Otherwise, disruptors like Bulletin will take over. Known as the “WeWork for retail,” Bulletin is a new company with physical stores that rents out sections and shelf-space to retailers who can’t afford long-term leases. Sure, the company only has three physical locations right now. But, be warned.