Companies find bigger returns in smaller spaces
They cost less to build and operate, and businesses can operate in more locations.
Joyce Smith/The Kansas City Star
To Neng Yang, the Best Buy box store in Independence is just too overwhelming, so much so that she only shops there once a year, at the holidays.
So when she needed a new cellphone, she bypassed the 55,000-square-foot store with its many departments — appliances, big-screen TVs, computers, cameras, car audio, video and music. Instead, she stopped across the street at the Best Buy Mobile store.
The slimmed-down 850-square-foot sister store, in Independence Center, concentrates only on mobile devices.
“I ask about a thousand questions, and this is more personalized, more one-on-one attention,” said Yang, of Blue Springs.
Yang bought a white Droid Razr, and her brother, John Yang, picked up a black one.
Bigger is not always better. Just ask the biggest retailers in the country — and their customers.
The recession and the growth of online shopping have conspired to cut chains down to size. One strategy they’ve employed has been to close underperforming stores. But Best Buy and an increasing number of companies are trying another strategy, too — going smaller.
Among the retailers testing smaller concepts are Blockbuster, Ann Taylor, the Gap, Kohl’s, Lowe’s and Sports Authority. RadioShack is trying a “store within a store” format in several OfficeMax stores in California.
Restaurants are also thinking small, including Leawood-based Houlihan’s Restaurants Inc.
Lower square footage makes for lower construction and remodeling costs, and that also tends to make them easier to finance. The smaller locations have less overhead costs and can be staffed by fewer employees.
The small size also gives the chains more flexibility in locations, allowing them to squeeze into heavily developed urban centers, and compact spaces in airports, college campuses and strip centers. If the location isn’t successful, the chains can close the sites with less financial fallout.
“For a decade it was ‘Build it, and they will come,’ ” said Candace Corlett, president of WSL Strategic Retail in New York. “It’s definitely a correction for retailers as well as restaurants, a direct result of consumers not having as much to spend on the extras. The strategy has to be to reduce your costs to offset less traffic. Usually that means less rent, shrinking retail and restaurants.”
Jeff Green, president of Jeff Green Partners, Phoenix-based real estate consultants, has long criticized the “bigger is better” movement.
“They think the bigger they are, the more exciting they are, and that’s not necessarily the case, as Apple has proven,” Green said. “Consumers like the smaller stores, like to be part of a ‘happening,’ and smaller stores have that feel.”
When retailers like Ann Taylor, Chico’s and the Gap opened larger stores, they didn’t necessarily see an equivalent rise in sales, if any rise at all, that would justify the added expense, Green said.
“Any retailer that is opening larger and larger stores, I question their long-term viability,” Green said. “Costco and Sam’s Club defy that theory. That’s because consumers really perceive them as great values, and value trumps the inconvenience of size.”
One of the latest retailers to embrace small stores is Cabela’s. Last Thursday the outdoor equipment and sporting goods retailer said it would open its first Cabela’s Outpost Store this fall in Union Gap, Wash. Up to three more are planned for next year.
Outpost stores will be significantly smaller than traditional Cabela’s — about 40,000 square feet compared to, say, the 185,000-square-foot Cabela’s in Kansas City, Kan. It will target smaller markets — 250,000 people or fewer, with a high concentration of them already Cabela’s customers.
When Houlihan’s converted a smaller Houston’s restaurant in Fairway to a Houlihan’s nearly a decade ago, it found it was nearly as profitable as its full-size restaurants, even those with outdoor patios. The company plans to open five restaurants under the smaller prototype this year, including a new freestanding operation at Oak Park Mall that will replace the current location there.
The stores are about 20 percent smaller in size, or about 5,500 square feet, and seat about 180 customers compared to about 225 in the previous prototype.
“The key is how efficient these small units are to build — smaller upfront investment cost, better operating efficiency,” said Jen Gulvik, spokeswoman for Houlihan’s. “And I think people are hungry for a more intimate dining experience, more neighborly.”
In the last 18 months the San Diego-based Sweet Tomatoes has been rolling out smaller restaurants, about 4,000 to 5,000 square feet, compared to their traditional locations of 7,000 square feet or more. It has downsized its celebrated 55-foot salad bar to 45 feet but hasn’t downsized the offerings — more than 45. The dining rooms are smaller, seating 160 to 230 people, compared to 250 to 300 people in the larger locations.
Customer counts have decreased in all restaurant categories industry-wide, said Tracy Marks, spokeswoman for Sweet Tomatoes. But with the smaller units, Sweet Tomatoes can open them closer together, even as close as 10 minutes apart as a customer convenience. Currently 10 of its 122 locations are smaller formats, and new expansion plans call for both sizes.
In 2011, Sweet Tomatoes also began testing Sweet Tomato Express, opening two locations in strip malls in California and Nevada. Express customers still get to select salad ingredients as they walk down a line, but employees put the salad together, much like at a Chipotle Mexican Grill. The Sweet Tomato Express operations, which run about 1,600 square feet, are designed for strip malls, universities, airports and other high-traffic areas.
Still, consumers who have come to know a brand as a “category killer” might be confused by the new concept.
The Walmart Neighborhood Stores, such as the two in Overland Park, are designed to provide shoppers with quick, convenient stops for fresh produce, dairy items and pharmacy products at Walmart’s low prices. The grocery stores are about 29,000 square feet compared to a 142,000-square-foot supercenter.
But some grocery store shoppers still expect to see the large selections of products Walmart is known for.
Carolyn Shaw of Shawnee was disappointed in the Valentine’s Day items at a Walmart Neighborhood store during a morning stop last week. As she buckled up her two children in the back of her minivan, she was already reluctantly planning an afternoon Walmart trip.
“Now I’ll have to go back out this afternoon to a bigger Walmart,” she said.