Is the small neighborhood store ready to be the next big retail trend?
Through a special arrangement, what follows is a summary of an article from WayfinD, a quarterly e-magazine filled with insights, trends and predictions from the retail and foodservice experts at WD Partners.
Last year, a WD Partners’ study, “Retail Supernova,” showed people enjoyed working from home so much that going back to the office five days a week was no longer an option. Being home more often, consumers were found to prefer to shop local more and wanted bigger brands to come to them.
This local shift is in lock step with retailers’ current strategies, mostly caused by macroeconomic forces, to reduce size and change location.
Despite in-store traffic seeing a strong recovery, online sales have continued to rise, albeit not as meteorically as during the pandemic. This factor alone meant that the physical retail footprint had to get smaller, either through closures or actual square footage per unit. By the end of 2022, everyone from Macy’s and Nordstrom to Target, Sephora, Express, Best Buy, Abercrombie, Victoria’s Secret, IKEA and even Starbuck’s announced smaller store models.
Right-sizing helps in the long run: less labor, less inventory (“showroom” stores), less build-out costs, less energy spend, better online fulfillment and return options, as well as the big one since 2020 — better accessibility.
A retail exec we know pointed out at the NRF Show this year, “Malls aren’t dead… meaning good malls aren’t dead.” We agree. Yet our studies show the preferred place to shop is right in consumers’ backyards — a return to neighborhood retail as in the days before the mall.
In our minds, the future of retail is the idea of the “15 Minute City”, dreamed up by the architect Carlos Moreno years ago. We believe it’s the perfect answer for the collision of the current macro developments: work from home, smaller/better stores and e-commerce. Many neighborhoods we see are already halfway there, but the biggest missing component in most cases is retail — modern, big brand retail. Neighborhood retail doesn’t have to be a “ladies” tennis shop or a candy store for kids. Rather, it can be everything we have in the “good” malls and more. Thanks to all sorts of technology advancements, we can and should have really great, modern retail that we can gladly walk to.
- Big Store, Little Store – How Retail Giants Are Getting Smaller and Going Local – WayfinD
- Retail Supernova – WD Partners
DISCUSSION QUESTIONS: Do you see a significant opportunity for national retailers to open up smaller stores in local neighborhoods? What factors do you see working for and against such expansion into smaller communities?
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27 Comments on "Is the small neighborhood store ready to be the next big retail trend?"
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Founder, CEO & Author, HeadCount Corporation
Retailers have been experimenting with store sizes and formats for as long as there’s been retailing — and it will continue as consumers evolve and shopping evolves. Smaller stores in local neighborhoods does present an opportunity for retailers to reach their consumers where they live. But ultimately, retail lives and dies by store traffic, and so any development will need to ensure that it is located in an area where shoppers like to be. Outdoor shopping venues and mixed-use areas seem to be especially attractive today.
Managing Director, GlobalData
Smaller stores are a trend, not only in terms of making the economics work better but also because they are easier and quicker for consumers to shop. The truth is that the days of buying loads of stuff and chucking it in a store to see what sells are over. Retailers now need to edit and curate ranges more carefully, based on what their consumers want. All that said, there are some caveats. First, there are counter trends: Target is opening larger stores, for example, so that it can improve services especially in omnichannel. Second, small stores are not easy: editing requires a lot of skill and not all retailers are particularly good at deciding how to configure assortments for smaller spaces. Third, I don’t completely buy the idea of 15 minute cities: it will work in some locations but not all as the economics and economies of scale just don’t stack up and many shoppers still like visiting the big mall.
Principal, Retail Technology Group
The “…edit and curate…” is the critical aspect of successfully managing “the smaller store.”
I see retail being planned when constructing apartment buildings a lot. From grocery stores to restaurants to services, they are now part of the thinking of planners for residents who live there. It’s a pretty smart idea.
Founding Partner, Merchandising Metrics
Most malls were conceived and built long before e-commerce was even an idea, much less the shopping factor it has become. And now some of these malls can no longer hold their own in this new market. Yet we know the important roles that both physical stores and e-commerce have in their symbiotic relationship. So if big mall stores are going away, then smaller neighborhood stores will have a role to play. Evolution finds a way.
Managing Partner Cambridge Retail Advisors
Town Centers are where it’s at. They offer the best of both worlds by combining a non-traditional anchor like a grocer with a mix of local and national brands. People have changed their habits, and it will be a long time before we are back to pre-pandemic office occupancy. Smaller footprint stores are easier to get approved by local zoning authorities, too. When you move to urban areas, you can’t build a cookie-cutter store as the space is just not available or not practical. Malls have been going with much smaller store footprints since well before the pandemic. Now more and more retailers are seeing the writing on the (much smaller) walls.
Principal, Retail Technology Group
A neighborhood format of a formerly-larger model will, almost by definition, lack either depth of choice or breadth of choice. Will the customer accept that? Adding to the complexity is that neighborhood preferences will vary — sometimes dramatically — from one neighborhood’s store to another neighborhood’s store. This makes inventory management a highly critical requirement, and the management of that store’s assortment is left somewhat to each store’s manager.
President, Spieckerman Retail
Are we talking about small formats or next-level localization? National retailers have been attempting to nail localization for years with varying success. Localization pops up at the top of retailers’ priority lists in cycles and we’re in one of those cycles now. Target, Kohl’s, Macy’s, and others are all cooking up new localization initiatives. The challenge is that these retailers built success on a model of scaling locations with as little variation as possible. Unique store design, local product offerings, and native landscaping are all in the mix yet even these elements are difficult to pull together in a single location. Popping a small format into a neighborhood is one thing — a true store of the community, quite another.
Director, Retail Market Insights, Aptos
For years, I have been advocating that retailers need to be able “go where their customers gather,” whether that be through pop-up stores, canopies at events, or smaller format stores close to their target customers. In my opinion, going smaller and more local is more than an opportunity, it’s a mandate.
Chairman Emeritus, Relex Solutions
What has driven the success of local stores in the UK has been the major supermarkets bringing quality food retail to local shopping, driving traffic from which other retailers can benefit. Companies are asking staff to go back to the office two or three days a week but that still leaves plenty of opportunity for local retail to thrive going forward. One question is, what is going to happen to those huge out of town hypermarkets when nobody wants to shop them any more?
VP, Professional Services, Retail, NCR
In the last five years there has been a trend to develop work-live-play communities and these have popped up everywhere, creating more “local” retail in numerous pockets all over urban and suburban communities. I like to explore these new communities because there’s so many good restaurants, breweries, and cool local retailers that are re-imagining a mix of experiences. In several of these communities, you’ll find a national retailer as the anchor, but there are many opportunities for big brands to get creative with smaller footprints.
Vice President, Brand Development - IGA, Inc.
“Right-sizing” is something retailers have needed to focus on for many years. While it may not be the next “big” thing, it certainly should be the next big thing for savvy retailers.
Principal, KIZER & BENDER Speaking
It is interesting. I have seen footsteps increasing in local, smaller stores and in convenience stores alike. Walking through larger stores, especially supermarkets, and finding holes everywhere on the shelves is pushing customers to go to stores where they feel they are better using their time. It’s like a huge momentum move. I think you will see more of them popping up.
Chief Operating Officer, Bloo Kanoo
It’s a never ending cycle and it’s time for the smaller stores, in local neighborhoods to have a “go.” There were reasons we used large retail stores in high density neighborhoods and those reasons were good once and will likely be again someday. However the advantage that could see this “move-to-small” cycle stick is the potential to finally deliver a seamless journey between the online and in-store experiences. The big challenge remains the small neighborhoods. Regardless of size, how many mall-like stores will small neighborhoods tolerate, and do they really want big brands in bite-sized buildings or do they prefer “locals” in their communities (supporting small business owners)? It’s a tale as old as time!
Strategy & Operations Transformation Leader
With the impacts of the pandemic, we have seen a resurgence of the attraction of the local downtown and Main Streets across America. In a post-pandemic world, retailers are challenged to go where the customers are, and they are not necessarily flocking to prominent department store locations and malls.
Target, Nordstrom, and many other retailers have experimented with the smaller format and the store of the future innovation concept stores to help mitigate the significant investment in large-scale department store spaces and reach the emerging Gen Z demographic.
The less-is-more and curated experience operating model will help reduce the inventory investments and the need to mark down products. However it will also result in a service-first model, where the customer may try on and experience the product while waiting a day or two for it to either be shipped to their home or received via BOPIS.
Professor, International Business, Guizhou University of Finance & Economics and University of Sanya, China.
Smaller stores in local neighborhoods are a hugely different business model from what the national retailers know. It is not just smaller stores. It is an entirely different mindset for management. It is not a decision to have less of this or less of that. To understand the neighborhood concept, get out the history books and study what Main Street was.
As I sit here in Manhattan, with my morning coffee, I am in a “15-minute city.” Rarely must one go further than a 15-minute walk to fill all their needs. Looking out the window, I see a drug store, supermarket, bank, butcher, liquor store, mobile phone store, pizza (of course), and bakery. Let’s not forget the coffee shop I am sitting in.
Retail Industry Strategy, Esri
This trend has ebbed and flowed over the years. We’ve learned that this can be very successful in the right neighborhood with the right products. We’ve also seen examples of where it doesn’t work. Walmart pulled back on their rural Neighborhood Markets, which were initially intended to compete with the dollar stores. I suspect that the traffic wasn’t there. Rural customers are used to stacking their trips to shopping centers and stocking up. The fill-in business from smaller stores there wasn’t enough.
Target’s small format stores are located in urban neighborhoods and around universities, areas with high foot traffic potential, or areas without many options.
Food, drug, and fast-moving CPG items are natural for small format stores in the right location. I have a harder time imagining apparel retailers doing well with these stores. These sorts of trips tend to be more of an outing. Consumers like the shopping experience, and they appreciate more extensive assortments and complementary retailers nearby.
The smaller store shift makes sense. National retailers will need to have a very disciplined approach to establish what the mission is for these spaces. Offering the right product alongside an extraordinary experience will turn initial curiosity into long-term loyalty. The efforts to find the right spot seem relatively easy, but once these stores open the make-or-break results will show.
Contributing Editor, RetailWire; Founder and CEO, Vision First
I live in an urban area and find that I shop more frequently, purchasing a smaller number of goods on an as-needed basis (vs stock-up shops). This bodes well for smaller formats with curated offerings that serve city residents, visitors and workers.
New developments here in downtown are all mixed use projects — live, work, play and shop. Most are local/regional businesses, except for a soon-to-come Target Express that everyone is anxious to patronize.
Marketing Strategy Lead - Retail, Travel & Distribution, Verizon
Smaller footprint stores is not a new trend, as several retail brands have been testing smaller stores in urban or smaller towns to either adjust to high real estate rates or small populations. And now with more consumers shopping online or showrooming for products they want to touch and feel, smaller stores with less inventory are a smart approach.
Senior Retail Writer
Yes, there is a significant opportunity for national retailers to shift to smaller format stores located within neighborhoods. The truth is, it’s cool to be a small business right now.
As always, retailers need to be strategic on where they open these stores — is there existing foot-traffic? Complimentary destinations already nearby?
However, the 15-minute city also requires walkable neighborhoods and a pedestrian-first community, which is rare in the U.S. I am not sure it is possible to focus on the retailing elements of the 15-minute city without also addressing larger urban planning and transportation design challenges.
Retail and Customer Experience Expert
Small format stores are hard for national large-format store retailers. The problem is merchandising and assortment to stock the shelves that fits the local needs. The integration of e-commerce in these small stores is a must, so that customers can pick up/return in these locations. I don’t think the small stores can fulfill everyone’s needs so a smooth transition back and forth with e-commerce is a must.
CFO, Weisner Steel
I didn’t read the full study, so I won’t comment on its merits further, but the snippets presented here don’t form a coherent story: other than CBDs — which really ceased to be a major shopping destination in the late 20th century … i.e. 30 to 60 years ago — there is little correlation between employment and retail areas. So it makes little sense that the decline in office attendance has had an impact on retail, outside of the restaurant and service oriented stores that directly served it. (Those areas, obviously, were and continue to be greatly impacted.)
The decline in store based retail is tied largely to online shopping. Period. As the latter continues to grow, the former will continue to shrink. The idea that a 10,000 gsf “neighborhood store” will somehow replace a store five, ten or even thirty times that size is delusional: how can the numbers possibly work?
Chief Amazement Officer, Shepard Presentations, LLC
Bringing large/national brand-name retailers to local markets that offers the experience of a smaller footprint with the most popular items is a wonderful solution that offers a logistically convenient access to locals. An important key to success will be some personalization to the local community. Winter coats may sell well in Maine, but not so well in southern Florida. Don’t waste space with merch the locals won’t be interested in.
Consultant, Strategist, Tech Innovator, UX Evangelist
Let’s keep the 15 minute city WEF political scam out of this discussion. It has nothing to do with stores meeting consumer demand.
Obviously the mall concept has turned for the worse as an industry. We were saying that many years before we used the term pandemic. For example, what was once the most thriving mall in my region now has two of five anchors long gone and the foot traffic of a turtle race, indicating the realities of e-commerce’s impact. Physical stores as a part of retail must change. This is the current evolutionary step needed as was the department store a century or so ago. But smaller neighborhood stores will only succeed if they can maintain fulfillment that is competitive with pure-play e-commerce rivals, else this will be yet another retail hail mary pass that didn’t connect.
Co-Founder, Customer Maps
There is an opportunity for national brands to open small stores in local neighborhood and be there where the customers are. Right-location and right sizing will help retailers in the long run: less labor, less inventory (“showroom” stores), less build-out costs, less energy spend, better online fulfillment, return options, better accessibility and make strong connections with local community. It does require expertise in identifying right location, right assortment and integration with e-commerce. Retailer have been experimenting ever since with store formats, therefore it is worth giving it a shot.
Founder & CEO, HotWax Commerce
Earlier customers had to travel to malls to make their purchases, but with small stores this can be done right where the customers are.
In my opinion, the “small-store format” concept is a part of changing trends and will undoubtedly grow further. It is evident that the younger generation prefers convenience and ease over everything else. Therefore, small neighborhood stores will prove to be a good investment opportunity for retailers.