January 31, 2012
Not Everyone Going Smaller Box Route
It’s not news that many big box operators — Walmart, Best Buy, etc. — are opening smaller formats. While not getting as much attention, some retailers — Menards, Forever 21 — are going the opposite route and opening bigger box stores.
According to a Star Tribune article, Menards has begun building stores in excess of 200,000 square-feet, including a two-story 235,000 square-foot unit in Eden Prairie, MN. The home improvement chain is also in the process of expanding another store in the state from 128,000 square-feet to 250,000 square-feet on two floors.
With the additional square feet, Menards is able to expand existing sections of the stores while adding new product categories including garden centers and lumber yards.
"People have to look, touch and see things," Joe Petrich, assistant general manager of the Eden Prairie store, told the Star Tribune. "We get them with the wow factor."
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Discussion Questions
Discussion Questions: Do you see other chains opening bigger stores such as Menards or will it be rare in a market where formats are shrinking? What are the keys to successfully operating big box stores?
Poll
I have watched these new Menards stores being built with great interest. As retailers are trending towards smaller footprints to stay viable and maintain a balance between their online and in-store presence, Menards has chosen to expand their footprint by doubling the square footage and adding a second floor. Escalators in a 250,000 square foot DIY big box! This is a gutsy move indeed. They reportedly paid $5 million for a 2.2 acre lot in a Minneapolis suburb.
Menards is a family-owned business and has been able to merge the intimacy of a small family business and ‘big box’. Menards has been able to maintain and create a bond with the communities in and around their stores. Their ability to react quickly, independently, and spontaneously to local market trends and pricing continues to give Lowe’s and Home Depot troubles in Menards’ ‘backyard’. This is a unique and rare move by a unique retailer. In addition to the usual pressure on its suppliers, Menards incorporates a unique rebate program that drives repeat business. Instead of cash, Menards offers its customers in-store credit. This has been a successful program that other retailers may want to look at more closely.
With the abundance of retail square footage generally yielding less than stellar productivity numbers, I find it hard to believe that Menards will be leading a trend with building larger stores. I do understand that in the home improvement retail channel that some departments require areas to adequately merchandise and showcase the products, but going bigger can alienate shoppers who are time starved and looking for an efficient shopping experience.
Herb Sorensen’s research tells us that shoppers tend to shop large stores (over 200,000 square feet) differently than more traditional formats, in that they break mega stores down in separate shopping trips, treating a department as a store in a store, so to speak. This practice would indicate that shopper’s have learned how to navigate big boxes so that they can find what they need on a particular mission trip and leave.
So as long as Menards and other mega stores do not become frustrated when they see very little cross-shopping of departments in their big box stores, and they can generate adequate volume out of each of their major departments as destination departments, keep building them big. If not, I would recommend being very cautious being big for big’s sake.
I just think Menards is the exception today, as the bricks and mortar stores are suffering from too much space. The internet continues to hammer away at brick and mortar stores, and it will make strip plazas ghost towns as commercial real estate is over saturated right now. We need a healthy economy, and my crystal ball is just not seeing it.
With the number of big-box retailers downsizing or dropping out of business over the past couple of years, we’re likely to see other merchants take on “opportunity real estate” plays.
The consumer is going to continue to come to the bazaar. If you can WOW them with effective merchandise, and easy stores to navigate, and a visible stable of well-trained associates, you’ll find them willing to roam expanded aisles.
With the present day market demographic information being at an all time performance low in accuracy and relevance, this is a colossal crap shoot. I wish there was more floorplan information available for the two story big box in this article to assist with the comments from readers.
Menards may be a pioneer in a possible new big-box store trend, but I find skepticism running through my fingers.
Menards is family owned and determines its own strategic procedures. That’s a big advantage for Menards as they can act swiftly and do unique things. And one thing that is unique about Menards is their penchant for pricing so many products at low prices that are advertised with a (delayed) purchase rebate. That gives Menards the temporary use of huge amounts of the customers’ money to enhance their operating results. It appears to be Retail Float.
As Adrian suggests, other retailers might want to look into this practice that drives repeat business via these preferential in-store credits. However, when I buy an item at Menards, advertised for “$100 after a $50 rebate” that I don’t get until weeks later, I soon realize that I temporarily paid $150 not $100. Menards has had the use of my $50 rebate as I wait for it to arrive in snail mail weeks later. But convoluted as this practice might be, it is working for Menards.
If more retailers used this practice I think it would soon bother a great many consumers (perhaps those other than Menards’ loyal following) not wishing to wait for their delayed discount while it is being used in the interim by the retailer. As I conclude, my fingers now warn me that I possibly could be wrong.
These examples will not be the norm moving forward. Menards and Forever 21 clearly saw an opportunity and are expanding the size of their store for a good reason (I would hope).
Other formats like Drug may see an increase in size to support their move into fresh produce and more grocery items. As an overall trend, I see stores getting smaller in the future.
Although diminutive formats are getting a lot of attention these days, I’ve written and spoken quite a bit lately about the new reasons why bulkier boxes are enjoying a selective resurgence. Some of them, like Walgreens’ Manhattan mega-store are what we call “proto-ships,” a cross between a flagship and a prototype that allow retailers to vet new brands, products, categories, and concepts under one roof rather than pushing them out chain-wide and seeing what sticks. Looking at the category expansion that Menards and Forever 21 are taking on in their big boxes, they would seem to fit the bill as well.
Live labs writ large.
We now are seeing a reason to be optimistic about the real estate slump. I see only a limited increase in smaller boxes going larger as described in the article. I see the trend going smaller for the next few years at least.
This will be the exception. On a very specific situation (fewer stores, high density, low competition), this might make sense. This is not, however, a viable strategy for major expansion. There simply aren’t enough of these kinds of situations around. Secondly, this introduces the complexity of managing inventories in different size boxes with different categories and varying volumes. As someone who has done that, it is not a winning formula.
I am still amazed at how many retailers have the need to build new stores from the ground up, regardless of size, while there is so much vacancy in the US.
I do think there is a market for certain retail brands to expand into larger formats, based upon successes in current smaller stores. However, the number of retailers for which this is a viable option today is extremely limited.
Prior to opening a larger format store, I would do a deep site selection process and take my “gut feelings” out of the equation. See if the population density will even support the square footage of the unit that I am planning. Also, introduce complementary product categories to organically grow the business.
Given the ability of consumers to touch product in-store but order online, retailers will be under increasing profit pressure. The over-store-ing of suburban America creates a cluttered environment which further exacerbates the situation.
Smaller stores can be strategically placed in opportunistic locations, providing the right consumers with the most popular products to take home immediately, while also integrating with the store’s e-commerce to provide the full offering.
Menards decision to “go big” represents a risk in this environment. However, since their products take up a lot of space, larger formats may still work for them. I am not sure, however, that this represents a trend outside of home improvement.
Building bigger stores will be rare in the retail. Menards is in the unique position of already having good penetration in cities and first ring suburbs in the Minneapolis market. There are 9 Menards stores within 25 miles of my house in the city. All 9 are inside the 494/694 “loop” that we urbanites tend to use as some kind of an invisible fence. Home Depot has introduced smaller format stores in Minneapolis and the first ring suburbs over the last 10 years or so. There are now 9 inside the loop. We have only one Lowe’s within 25 miles and it is outside the loop. Due to their penetration of the market and their foresight, Menards can now expand while their competitors are literally trying to squeeze into areas with greater population density.
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I have watched these new Menards stores being built with great interest. As retailers are trending towards smaller footprints to stay viable and maintain a balance between their online and in-store presence, Menards has chosen to expand their footprint by doubling the square footage and adding a second floor. Escalators in a 250,000 square foot DIY big box! This is a gutsy move indeed. They reportedly paid $5 million for a 2.2 acre lot in a Minneapolis suburb.
Menards is a family-owned business and has been able to merge the intimacy of a small family business and ‘big box’. Menards has been able to maintain and create a bond with the communities in and around their stores. Their ability to react quickly, independently, and spontaneously to local market trends and pricing continues to give Lowe’s and Home Depot troubles in Menards’ ‘backyard’. This is a unique and rare move by a unique retailer. In addition to the usual pressure on its suppliers, Menards incorporates a unique rebate program that drives repeat business. Instead of cash, Menards offers its customers in-store credit. This has been a successful program that other retailers may want to look at more closely.
With the abundance of retail square footage generally yielding less than stellar productivity numbers, I find it hard to believe that Menards will be leading a trend with building larger stores. I do understand that in the home improvement retail channel that some departments require areas to adequately merchandise and showcase the products, but going bigger can alienate shoppers who are time starved and looking for an efficient shopping experience.
Herb Sorensen’s research tells us that shoppers tend to shop large stores (over 200,000 square feet) differently than more traditional formats, in that they break mega stores down in separate shopping trips, treating a department as a store in a store, so to speak. This practice would indicate that shopper’s have learned how to navigate big boxes so that they can find what they need on a particular mission trip and leave.
So as long as Menards and other mega stores do not become frustrated when they see very little cross-shopping of departments in their big box stores, and they can generate adequate volume out of each of their major departments as destination departments, keep building them big. If not, I would recommend being very cautious being big for big’s sake.
I just think Menards is the exception today, as the bricks and mortar stores are suffering from too much space. The internet continues to hammer away at brick and mortar stores, and it will make strip plazas ghost towns as commercial real estate is over saturated right now. We need a healthy economy, and my crystal ball is just not seeing it.
With the number of big-box retailers downsizing or dropping out of business over the past couple of years, we’re likely to see other merchants take on “opportunity real estate” plays.
The consumer is going to continue to come to the bazaar. If you can WOW them with effective merchandise, and easy stores to navigate, and a visible stable of well-trained associates, you’ll find them willing to roam expanded aisles.
With the present day market demographic information being at an all time performance low in accuracy and relevance, this is a colossal crap shoot. I wish there was more floorplan information available for the two story big box in this article to assist with the comments from readers.
Menards may be a pioneer in a possible new big-box store trend, but I find skepticism running through my fingers.
Menards is family owned and determines its own strategic procedures. That’s a big advantage for Menards as they can act swiftly and do unique things. And one thing that is unique about Menards is their penchant for pricing so many products at low prices that are advertised with a (delayed) purchase rebate. That gives Menards the temporary use of huge amounts of the customers’ money to enhance their operating results. It appears to be Retail Float.
As Adrian suggests, other retailers might want to look into this practice that drives repeat business via these preferential in-store credits. However, when I buy an item at Menards, advertised for “$100 after a $50 rebate” that I don’t get until weeks later, I soon realize that I temporarily paid $150 not $100. Menards has had the use of my $50 rebate as I wait for it to arrive in snail mail weeks later. But convoluted as this practice might be, it is working for Menards.
If more retailers used this practice I think it would soon bother a great many consumers (perhaps those other than Menards’ loyal following) not wishing to wait for their delayed discount while it is being used in the interim by the retailer. As I conclude, my fingers now warn me that I possibly could be wrong.
These examples will not be the norm moving forward. Menards and Forever 21 clearly saw an opportunity and are expanding the size of their store for a good reason (I would hope).
Other formats like Drug may see an increase in size to support their move into fresh produce and more grocery items. As an overall trend, I see stores getting smaller in the future.
Although diminutive formats are getting a lot of attention these days, I’ve written and spoken quite a bit lately about the new reasons why bulkier boxes are enjoying a selective resurgence. Some of them, like Walgreens’ Manhattan mega-store are what we call “proto-ships,” a cross between a flagship and a prototype that allow retailers to vet new brands, products, categories, and concepts under one roof rather than pushing them out chain-wide and seeing what sticks. Looking at the category expansion that Menards and Forever 21 are taking on in their big boxes, they would seem to fit the bill as well.
Live labs writ large.
We now are seeing a reason to be optimistic about the real estate slump. I see only a limited increase in smaller boxes going larger as described in the article. I see the trend going smaller for the next few years at least.
This will be the exception. On a very specific situation (fewer stores, high density, low competition), this might make sense. This is not, however, a viable strategy for major expansion. There simply aren’t enough of these kinds of situations around. Secondly, this introduces the complexity of managing inventories in different size boxes with different categories and varying volumes. As someone who has done that, it is not a winning formula.
I am still amazed at how many retailers have the need to build new stores from the ground up, regardless of size, while there is so much vacancy in the US.
I do think there is a market for certain retail brands to expand into larger formats, based upon successes in current smaller stores. However, the number of retailers for which this is a viable option today is extremely limited.
Prior to opening a larger format store, I would do a deep site selection process and take my “gut feelings” out of the equation. See if the population density will even support the square footage of the unit that I am planning. Also, introduce complementary product categories to organically grow the business.
Given the ability of consumers to touch product in-store but order online, retailers will be under increasing profit pressure. The over-store-ing of suburban America creates a cluttered environment which further exacerbates the situation.
Smaller stores can be strategically placed in opportunistic locations, providing the right consumers with the most popular products to take home immediately, while also integrating with the store’s e-commerce to provide the full offering.
Menards decision to “go big” represents a risk in this environment. However, since their products take up a lot of space, larger formats may still work for them. I am not sure, however, that this represents a trend outside of home improvement.
Building bigger stores will be rare in the retail. Menards is in the unique position of already having good penetration in cities and first ring suburbs in the Minneapolis market. There are 9 Menards stores within 25 miles of my house in the city. All 9 are inside the 494/694 “loop” that we urbanites tend to use as some kind of an invisible fence. Home Depot has introduced smaller format stores in Minneapolis and the first ring suburbs over the last 10 years or so. There are now 9 inside the loop. We have only one Lowe’s within 25 miles and it is outside the loop. Due to their penetration of the market and their foresight, Menards can now expand while their competitors are literally trying to squeeze into areas with greater population density.