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Are small stores the next big thing in retail?

  • Opinion
  • September 15, 2015
  • Francesca Nicasio
Are small stores the next big thing in retail?

Target, Wal-Mart, and Ikea have plenty of things in common. For one thing, they’re all considered big box stores; and for another, they all have “wallet-friendly” pricing. Wal-Mart has its “everyday low prices”, Target is known for its “cheap chic” strategy and its “expect more, pay less” slogan, while people flock to Ikea to score furniture and homeware items for less. 

But in addition to these shared attributes, Target, Wal-Mart, and Ikea have come to have another important common denominator: All three retailers have started building smaller-format stores.

Take Wal-Mart, for example. Last year, the retail giant opened 240 small-format stores, compared to 120 supercentres. Target is on the same path. For the first time since the company’s inception, Target will open more small stores than big boxes in 2015. According to the retailer, it plans to open nine smaller format stores (such as City Target) and six big box locations.

Meanwhile, in Ontario, Ikea is set to open its first small-format store. The furniture retailer will establish a 20,000 square-foot branch that will serve as a “Pick-Up Point” where customers can pick up the items they purchased online. The store will sell a limited assortment of merchandise, but customers will be able to browse and buy other products using in-store tablets. This Ikea location will also offer services such as home deliveries, assembly, planning, online sales support, and more.

Clearly, there’s a shift happening in big box retail, and it will be interesting to see how this trend plays out and if similar retailers (Best Buy, Home Depot) will follow suit. But perhaps an even more important question is why this is happening. What are the reasons behind the move to smaller store formats and how will they benefit customers and retailers? 

The succeeding points aim to answer these questions. Go through them below then weigh in with your own thoughts in the comments. 

In modern retail, having more products in-store isn’t always better

In the past, many retailers focused on offering wider selections and stocking more merchandise to give shoppers as many choices as possible. These days, however, the retailers that are succeeding are those whose selections aren’t necessarily the largest, but rather it’s those that have the best or localized assortments.

As Chris Petersen, CEO of Integrated Marketing Solutions notes, the “more is better” mentality when it comes to products doesn’t work anymore. According to him, the retailers that seem to be winning lately are the ones that curate assortments. “What that means,” he says, “is carefully selecting the top styles, showing the top models, or offering a showcase of 'good, better, best' instead of trying to stock every color or every single SKU.”

Additionally, modern retail stores aren’t just about “stuff” anymore—they’re about services, convenience, and experiences. Smaller format stores make it easier to implement these things because they allow customers to find what they need faster, and they enable retailers to be more nimble when it comes to reinventing themselves and adapting to the needs of consumers. 

Urban locations call for smaller stores

Millennials—a highly coveted market segment for many retailers—prefer urban locations over suburban areas, making it more difficult for retailers to draw them into their stores. This is why more and more big box merchants are bringing the store to their customers.

It’s also important to remember that convenience and accessibility are more important than ever. We live in an age where people can shop from pretty much anywhere, and they can have their items delivered to their homes or a local store—sometimes in less than 24 hours. These days, few consumers have the patience to drive to a retail store that’s an hour away unless they have a really compelling reason to do so (ex: events, unique experiences, exclusive products, etc.)

That’s why an increasing number of retailers—particularly those that sell commodities—are choosing to build their stores in locations that are close and accessible to shoppers. (And this usually means urban and highly-populated areas.) 

Weigh in

Do you think smaller format stores will be prominent in the future? Can you name other reasons big box retailers are choosing to go small? Let us know in the comments.

 Francesca Nicasio is a retail expert and blogger for Vend, an iPad-based point-of-sale software that helps merchants manage and grow their business. This article was republished from Vend's retail blog, where Vend talks about trends, tips, and other cool things that can help stores increase sales and serve customers better.

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