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In the past ten years, retailers have increased the size of their stores, but sales have not followed suit. For example, The Gap has lost 40 percent of its average sales per square foot over the period from 1999 to 2009, even as square footage grew 62 percent. Ann Taylor’s square footage grew even more—135 percent—over the past 20 years, and yet sales per square foot have dropped 33 percent since 1999.

Apparently, retailers were just plain wrong when they decided that a bigger store would mean more room for more merchandise and more sales. Larger stores are harder to fill, because the merchandise is no longer tailored to the customers. The Gap for example expanded its merchandise selection in its massive stores, which reached up to 18,000 square feet, so much that customers were unsure what the brand image was anymore.

Today The Gap plans to reduce its largest outlets to an optimum size of 8,000 to 12,000 square feet. It also plans to consolidate its various brands, such that GapKids and Gap Body would appear in the same space as the main Gap store.

It can make such radical changes because The Gap remains an attractive in a mall—nearly as important as an anchor tenant or department store. Mall owners sign leases with other tenants that contain a contingency for a Gap located in that mall. Therefore, malls are mindful of The Gap’s requests to downsize its retail space. As frustrating as it may be to rent a smaller space to The Gap, it is better than having the retailer depart from the mall altogether. Not only would the mall operator lose a popular tenant, but it would risk the exodus of other mall tenants as well.

In contrast, Aeropostale, with its smaller stores, has enjoyed great success, even during the recession. Some stores earn up to $800 in sales per square foot, compared with The Gap’s average of $401 and Ann Taylor’s $337 sales per square foot. This chain therefore is looking to expand some of its most productive locations, moving in exactly the opposite direction of The Gap.

Discussion Questions:

1. Why might retailers downsize their store space?

2. What are the logistics associated with downsizing retail space?

Elizabeth Holmes, “Sizing Up Property, Mall Stores Try to Shrink,” The Wall Street Journal, March 19, 2010.