October 10, 2006
Retailers Go Vertical Route
Big box retailers such as Wal-Mart, Costco, Publix and The Home Depot are all looking up, literally.
According to a report in the Miami Herald, big box operators are finding that the scarcity of space, particularly in urban areas, necessitates that stores be built on a number of floors instead of the one-story structures that dot the American landscape.
A case in point is Target. The retailer, according to the Herald report, has 33 multilevel stores in operation. The newest location opening in midtown Miami has multilevel parking attached to make it easier for consumers to move purchased product out of the store.
Publix too has found the need to go the vertical route. The company opened its first multilevel location in the Sunset Harbour neighborhood of Miami in 1998. The store has a moving walkway to bring shoppers up to the parking garage.
‘In order for us to continue to expand, we had to think outside the box,’ said Maria Brous, a spokesperson for Publix. “We had to be flexible. We had to be open to different types of formats.”
Discussion Questions: Is the lack of space in urban areas affecting retailers in ways other than finding the need to move from single to multilevel stores?
How is the new urbanism movement and its promotion of mixed use neighborhoods affecting store layouts?
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The New Urbanism — the final frontier for big box retailers.
Retailers like Home Depot and Wal-Mart are doing the same thing. They have recognized inner-city locations as potentially lucrative sites — years after they were abandoned by many retailers.
However, when you go into urban areas, you also have to adjust your merchandising strategies. City dwellers don’t come to stores in their cars and can’t usually stock up on big sizes. Basically, they need sizes they can carry back to their apartments or items that will fit in carts they bring with them.
Also, the mix has to change. Home Depot in New York City, for example, has focused on home decor rather than hardcore repair and remodeling materials. They are catering to consumers, not contractors. Also, it’s unlikely you’re going to sell many snow throwers or leaf blowers in urban stores, so use the space for other products.
When it comes to food, I think the key to many urban areas will be new selections of prepared or semi-prepared foods and smaller packages, since retailers deal with fewer family shoppers.
National big box stores run out of low cost locations. To keep growing, they consider higher-cost, denser areas. The higher costs include rents, shrink, compensation, taxes, and transportation difficulties. The balance can be higher sales per square foot, and greater gross margins, if the pricing and merchandise mix is adjusted. The Home Depot in Manhattan on 23rd Street doesn’t sell lumber, for example. Many chain retailers use “price zones” that charge higher margins in higher cost locations.
The price zone difficulties come when (1) customers notice that the company web site prices might not match the local bricks and mortar locations and (2) regional ad circulars with specific prices disproportionately hurt profits in high-cost locations. For example, when using the Staples web site, prices aren’t quoted until the customer gives a shipping zip code. And many Staples items are not simultaneously available online and in the bricks and mortar locations.
Fine tuning the assortment (not “cookie cutting”) may be the biggest challenge of urban stores. One retailer, Wal-Mart, has talked about their mistakes in urban merchandising, with rows of unsold riding lawnmowers left at end of season. Obvious after the fact, but a new view of store traits for the urban stores from department down to sub-class levels will be needed.
Many urban shoppers buy groceries on an almost daily basis, requiring smaller pack sizes, so average basket can be less, with an offset of higher trips due to more commuters in urban areas. These are one of the few areas still selling 1 roll toilet paper.
Will the best urban store offer home delivery to increase average basket? Ethnic and income densities change within blocks. Regional and niche brands can be off the radar nationally, but top sellers locally. It will take a look outside the retailer’s key customer numbers and adjustment to “commuter sized” assortments in key categories up front, to avoid riding lawnmower sized markdowns and to maximize sales and profit.
In addition to fine-tuning assortments and skewing selection to demographics, stores also are learning to edit their assortments and streamline their stores to do more business in less space. The new Bloomingdale’s is SOHO is a perfect example. In a small amount of space, they have presented key items and brands and generate excitement and sales. This store has taught them new ways to better present and sell merchandise in their older, larger stores.
Urban consumers often live in condos and apartments that are a smaller sq. footage than suburban homes. Urban consumers have a different lifestyle than suburban consumers. They may not need the same mix of products and they may not need the large sizes traditionally sold in many big box stores. Getting to know the consumers and adapting the product of the store to those consumers is critical for success.
“Location, Location, Location”. Whether it’s wide or tall, as long as it has the traffic pattern and neighborhood density, so be it!
This maybe a blessing in disguise! Many shoppers have been complaining about the ‘football field’ sizes of stores. And without proper directories or a greeter to tell or show shoppers where to go, why should shoppers stay?
Time is valuable.,.whether shoppers live in the urban area or suburbs. Retailers better get it. Hmmmmmmmmm
Some people are calling this vertical structuring “thinking outside the box.” If they mean “outside the first generation box stores,” I get it. If they mean “original idea,” me thinks they must be very young to have forgotten what department stores look like.
And it’s hard to believe that anyone at Wal-Mart was thinking they should use valuable floor space to display a row of riding lawn mowers in a territory that has no lawns… surely someone made this up!
It seems to me that we’re observing a typical evolution of businesses that are searching (as they should) for ways to expand into territories where demographics and geographical limitations are different from the first generation stores.
Presumably, what made single levels location popular was flexibility: departments – and the merchandise within them – could be expanded, contracted and moved about quite easily. (For the customer, it’s a trade-off, since single-level locations can become unwieldy as the square footage zooms up beyond the 200,000 sq. ft. level.) Exactly how important this was is hard to tell – I’d guess not as much as many think – but we’ll find out.
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The New Urbanism — the final frontier for big box retailers.
Retailers like Home Depot and Wal-Mart are doing the same thing. They have recognized inner-city locations as potentially lucrative sites — years after they were abandoned by many retailers.
However, when you go into urban areas, you also have to adjust your merchandising strategies. City dwellers don’t come to stores in their cars and can’t usually stock up on big sizes. Basically, they need sizes they can carry back to their apartments or items that will fit in carts they bring with them.
Also, the mix has to change. Home Depot in New York City, for example, has focused on home decor rather than hardcore repair and remodeling materials. They are catering to consumers, not contractors. Also, it’s unlikely you’re going to sell many snow throwers or leaf blowers in urban stores, so use the space for other products.
When it comes to food, I think the key to many urban areas will be new selections of prepared or semi-prepared foods and smaller packages, since retailers deal with fewer family shoppers.
National big box stores run out of low cost locations. To keep growing, they consider higher-cost, denser areas. The higher costs include rents, shrink, compensation, taxes, and transportation difficulties. The balance can be higher sales per square foot, and greater gross margins, if the pricing and merchandise mix is adjusted. The Home Depot in Manhattan on 23rd Street doesn’t sell lumber, for example. Many chain retailers use “price zones” that charge higher margins in higher cost locations.
The price zone difficulties come when (1) customers notice that the company web site prices might not match the local bricks and mortar locations and (2) regional ad circulars with specific prices disproportionately hurt profits in high-cost locations. For example, when using the Staples web site, prices aren’t quoted until the customer gives a shipping zip code. And many Staples items are not simultaneously available online and in the bricks and mortar locations.
Fine tuning the assortment (not “cookie cutting”) may be the biggest challenge of urban stores. One retailer, Wal-Mart, has talked about their mistakes in urban merchandising, with rows of unsold riding lawnmowers left at end of season. Obvious after the fact, but a new view of store traits for the urban stores from department down to sub-class levels will be needed.
Many urban shoppers buy groceries on an almost daily basis, requiring smaller pack sizes, so average basket can be less, with an offset of higher trips due to more commuters in urban areas. These are one of the few areas still selling 1 roll toilet paper.
Will the best urban store offer home delivery to increase average basket? Ethnic and income densities change within blocks. Regional and niche brands can be off the radar nationally, but top sellers locally. It will take a look outside the retailer’s key customer numbers and adjustment to “commuter sized” assortments in key categories up front, to avoid riding lawnmower sized markdowns and to maximize sales and profit.
In addition to fine-tuning assortments and skewing selection to demographics, stores also are learning to edit their assortments and streamline their stores to do more business in less space. The new Bloomingdale’s is SOHO is a perfect example. In a small amount of space, they have presented key items and brands and generate excitement and sales. This store has taught them new ways to better present and sell merchandise in their older, larger stores.
Urban consumers often live in condos and apartments that are a smaller sq. footage than suburban homes. Urban consumers have a different lifestyle than suburban consumers. They may not need the same mix of products and they may not need the large sizes traditionally sold in many big box stores. Getting to know the consumers and adapting the product of the store to those consumers is critical for success.
“Location, Location, Location”. Whether it’s wide or tall, as long as it has the traffic pattern and neighborhood density, so be it!
This maybe a blessing in disguise! Many shoppers have been complaining about the ‘football field’ sizes of stores. And without proper directories or a greeter to tell or show shoppers where to go, why should shoppers stay?
Time is valuable.,.whether shoppers live in the urban area or suburbs. Retailers better get it. Hmmmmmmmmm
Some people are calling this vertical structuring “thinking outside the box.” If they mean “outside the first generation box stores,” I get it. If they mean “original idea,” me thinks they must be very young to have forgotten what department stores look like.
And it’s hard to believe that anyone at Wal-Mart was thinking they should use valuable floor space to display a row of riding lawn mowers in a territory that has no lawns… surely someone made this up!
It seems to me that we’re observing a typical evolution of businesses that are searching (as they should) for ways to expand into territories where demographics and geographical limitations are different from the first generation stores.
Presumably, what made single levels location popular was flexibility: departments – and the merchandise within them – could be expanded, contracted and moved about quite easily. (For the customer, it’s a trade-off, since single-level locations can become unwieldy as the square footage zooms up beyond the 200,000 sq. ft. level.) Exactly how important this was is hard to tell – I’d guess not as much as many think – but we’ll find out.