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Whereas once retailers seemed dedicated to the notion that “bigger is better,” today they are embracing instead the maxim that “good things come in small(er) packages.” These moves appear to reflect dual influences of improved targeting and inventory efficiency.

Walmart may provide the most remarkable example. Its supercenters, which have averaged 195,000 square feet, will lose significant real estate by opening with 180,000 square feet. The epitome of giant retail also is opening 30–40 smaller format stores in urban markets, each of which ranges 30,000–60,000 square feet—or less than one-third the size of regular Walmart stores.

Expanding into urban markets appears to be a key driver of shrinking stores. Retailers need to maximize sales in the minimal retail space available in these areas, so they undertake inventory analysis and eliminate categories that sell poorly in particular markets. Few customers in a city store need lawn mowers for example. Along similar lines, Bloomingdale’s has eliminated its children’s departments in stores patronized mainly by an adult clientele.

Urban locations are appealing to retailers, because they imply a dense population in a small trade area. Previously large retailers have been handicapped in their ability to move into these promising locations, because they have mandated large store sizes. If they can better control their inventory and shrink their stores though, they can take advantage of new opportunities and appeal to new segments of customers.

Of course, many customers worry little about where the stores are located, because they buy whatever they need online. In this case, the brick-and-mortar stores serve mainly to provide a compelling customer experience, and they do not need to stock the high level of inventory traditionally required to support their retail business. Thus instead of more NikeTowns, Nike plans to open a 20,000 square foot store in Santa Monica Place that focuses specifically on the experience factor, not merchandise sales. In another notable shift, the new store will even have a flexible format that enables it to be moved to other locations, as Nike deems necessary.

Discussion Questions:

  1. Why have big box stores traditionally been so big?
  2. Why are they changing now?

Debra Hazel, “Small Formats, Big Opportunities,” Chain Store Age, February 2011.