Think Small?

In past columns, I’ve spent time discussing how supermarkets and big-box retailers are successfully rolling out smaller stores. What hasn’t been talked about much is how that trend is starting to spread across the industry, in particular, with specialty retailers. It’s not just the big boys getting smaller any more, it’s almost everyone.



Around the industry, I think retailers are realizing that bigger is not necessarily better, and that saving money on overhead can mean the difference between success and failure. We’ve seen a number of headlines about chains contracting their store counts, but it’s becoming more and more common for them to also reduce the size of their stores. And, many of the most recognizable brands are leading the charge: Chico’s went from a store prototype of around 1,800 sq. ft. at the beginning of the decade up to approximately 4,400 sq. ft. just a couple of years ago and is now back down to a more manageable 2,000-sq.-ft. layout. The Gap is downsizing both their traditional Gap stores and their Old Navy locations, and is consolidating their Gap, BabyGap, GapKids and Gapbody concepts into one store with multiple departments.



While much of this is obviously motivated by the economic pressures of a sustained recessionary cycle, I really think it was bound to happen eventually. And, the way I see it, that’s not at all a bad thing. In fact, in the long run, it’s probably a very smart move for most retailers. Wall Street investors seem to see it the same way, based on how hot they are for one of the “go small” pioneers, Francesca’s Collections. The women’s clothing and accessories retailer, which just went public six weeks or so ago, has been at the forefront of the small-store model, with store sizes of less than 1,500 sq. ft. The smaller size gives Francesca’s great flexibility with location, and reinforces the brand’s emphasis on value and focus on driving sales per square foot.



To me, Francesca’s is the preeminent example of a new industry-wide refocus on productivity: not just generating more sales, but getting more sales per square foot. If you think about it, it’s actually a return to a more “old school” retail idea, where the build-out didn’t speak to the customer, the merchandise did. When you consider the fact that the retail prototype expansions we saw in the ’90s and ’00s added significant costs without adding any extra value or sales power (most of those bigger stores saw very little, if any increase in sales per square foot), it’s actually tempting to ask, “What took so long?” I think it was largely a collective sense of inertia and a “keeping up with the Joneses” mentality that motivated that growth in the first place. In retrospect, many retailers actually had the optimal size at the beginning of their expansion arc, and are now going back to that formula.



I see stores like Francesca’s and the Apple Store (which is doing about ten times the industry average in sales per square foot) as the way of the future. It’s been obvious for some time that bigger is not better, but it has taken a couple of gutsy retailers to go against the grain to PROVE it. For landlords, this trend is a mixed blessing. The good news is: sales per square foot should go up, and more productive stores can make a center more appealing to other retailers. The bad news is: you need more stores. In the short to medium term, landlords still have empty space to lease with very few new formats coming online, and finding enough retailers to fill those gaps might be a challenge.



What do you think? Email me at [email protected].

Jeff Green is president and CEO of Phoenix-based Jeff Green Partners (jeffgreenpartners.com), a leading consulting firm specializing in retail real estate feasibility, retail expansion planning, medical retail planning, location analysis and commercial land use.

Click here for past columns by Jeff Green.