Threatened by online shopping, large retail stores are attempting to change their image and downsize their facilities. Sears, Macy’s, Target, Walmart, etc. are opting for smaller, focused stores with fewer product lines, fewer brands, and contained layouts.
Lower real estate costs are an obvious benefit, but the challenges of meeting customers’ existing expectations and needs for variety are daunting. Sears is experimenting with a combination of reduced product offerings on its premises and access to an expanded inventory via computer kiosks throughout the store.
This post is based on the Boston Globe article, Can the Rapidly Shrinking Store Save Legacy Retailers?, by A. Bhattarai, December 26, 2017.
1. What are the external factors that have led large retailers to downsize their brick-and-mortar stores?
Guidance: Factors include fierce online competition forcing cost reductions, changing markets (demographics, location, and preferences), and new technologies to display products within the store.
2. Many large retailers need to attract customers with a large variety of products and low costs. Are there trade-offs?
Guidance: On one hand, smaller facilities enable legacy retailers to cut costs and be more competitive; on the other, they limit the number of brands and product lines that can be displayed. There will be a trade-off unless retailers find ways to provide low cost and variety at the same time (e.g. combination of store display and online shopping). This is a good opportunity to discuss Skinner’s trade-off model vs. the cumulative model.
3. What are the layout design challenges in smaller stores?
Guidance: Challenges include poor traffic flow, lack of attractive product displays, fewer opportunities to influence sales volume for several brands and to accommodate a large number of customers with different needs.
4. What are the capacity implications for retail stores opting to downsize?
Guidance: The smaller stores are seen as a necessity to attract Millennials. However, the impact of the changes is still uncertain. Will the changes spur growth or will they accelerate the decline of brick-and-mortar stores? The uncertainty in sales projections complicates capacity planning. Although inventory reductions can be anticipated, workforce requirements could remain relatively stable as retailers try to compete through superior customer service.