Should Merchants Share Space to Cut Costs and Build Sales?
It isn’t a new idea, but many retailers think it’s a good one. In order to attract more customers, retailers are sharing space with complementary businesses.
One recent addition is Walmart’s agreement with Seattle’s Best to open in its parking lots. Seattle’s Best already had what its VP and general manager, Frank Sica, called a "strong relationship with Walmart," so the link seems natural. Bloomberg quotes him as saying, "Our customer is definitely on the go — they’re value conscious and they’re in need of a better cup of coffee."
Difficult economic conditions, plus extra efforts required to attract customers, make the idea of sharing real estate increasingly attractive to retailers both large and small.
MINDS Eye Bookstore of Mount Clemens, Michigan, which specializes in books about metaphysics and alternative healing, found a match by sharing its building with a yoga studio. In Atlanta, a coffee shop and bakery saw the light, encouraged by a landlord wanting to lease more space.
Way over in Australia, Wendy Jackson started a website called Shops to Share, "aimed at anyone who wants to share or source shop space," according to startupsmart.com. Described as "the retailers’ meeting place," Ms. Jackson got the idea when her one-woman business had more space than it needed. Explaining that creating "a more community-friendly, interdependent retail sector could mean survival for many," she added that her goal is to "help to boost small business nationally and help our small retailers to not only survive but flourish and end each month with more cash in their pockets."
Ms. Jackson worries that retailers may fail to innovate in attempts to battle a tough economic environment. "Multifaceted" stores have distinct advantages, she believes, for retailers, landlords and consumers.
- Seattle’s Best to open stores in Wal-Mart parking lots – Bloomberg News
- How small shops economize by sharing space – entrepreneur.com
- Shops to Share spreads retail cheer – startupsmart.com
- Restaurant chains to drive growth through non-traditional locations – Nation’s Restaurant News
- Seattle’s Best testing outlets in Walmart stores – Nation’s Restaurant News
- Seattle’s Best to open three drive-throughs in Tarrant County – Star-Telegram
Discussion Questions
Do you expect to see more retailers sharing existing space? Do you see sharing locations as more beneficial from a cost savings standpoint and as a way for retailers to attract additional customers?
If you have a great reputation, why share it with a perceived lesser brand? It can defuse part of your impact, confuse your primary appeal, and can be viewed by too many consumers as a cost-saving device since few brands/stores have equal prime drawing power.
If you look at the overall retail forecast for next few years, the growth is pretty much flat. However, if you see the online growth potential, it’s in the double digits, which indicates that this growth is coming at the expense of store sales. Retailers on average have over 60% of investments made in real estate in form of leases or ownership of the store space. They have to make this investment work harder for them.
The example here is of one such instance, when sharing existing space can drive additional profits and complimentary businesses can drive footfalls. Recently we saw M&S getting banks in their stores. One of the key decisions retailers need to make is where to get this extra space. Deriving the incremental impact of letting go of some of your store space to drive traffic and additional rental revenue needs to be evaluated.
Great idea to share space with a complementary retailer, but I would suggest that you carefully consider how it’s done. Do you want to carve out a section of your existing space or do you simply want to be next door?
Sharing floor space, back rooms, utilities, etc. is far different than walling off some empty space in your store with its own entrance, etc. Both allow you to build off each other’s traffic. Though the latter may cost more initially, it is far less complex if things go wrong.
This is old hat in several countries around the globe. I remember being in Australia and Hong Kong 20 years ago and writing about the “villages of stores” selling ancillary product lines. This is not only in food, where you have a butcher shop, a fishmonger, a produce stand, etc. There are also clothing merchants sharing space and even electronics sellers. The interesting thing about these examples of these markets is that they create communities amongst the merchants, a synergy, which result in a very engaging shopping experience.
Sharing retail space is never an all or nothing issue. For food retailing it has rarely been a benefit. We have added banks and dry cleaners, which only provide rent. The food store brings in the customer and all that is being accomplished is one stop shopping, which only the industry—not the consumer—is concerned with. Other retail areas may benefit. For example organic/natural might finds some sharing partners. Non-food retailers have the greatest opportunity for sharing. Combined could increase the customer count. We are seeing some of this with the smaller franchises like Baskin-Robbins.
If it is a dead space issue, the real solution is to find products your customers want to buy.
The examples in the article seem to be VERY broad, forcing a “yes” answer to the question. To be more specific, supermarkets have been doing this for a very long time, sharing space with banks, florists, dry cleaners and more—almost always in the same shopping center and often in the same four walls.
The real questions is, will it make a real difference in the success of the retailer? I guess the answer there is “it depends,” as it needs to be aligned with the retailers value proposition, shopper requirements, and many other factors that good retail business leaders should already be considering.