Shrinkage. Be prepared for more cold water.

Yesterday Best Buy announced its plans to shrink its U.S. big-box square footage by 10% to compete more effectively with Amazon and other digital competitors.

Expect to hear more announcements like this–at least from those retailers who get how hard the winds of change are blowing for brick and mortar retailers. Physical retail is not going away, but the assortment and prices advantages of pure play e-tailers are overwhelming for more and more consumers.

For retailers that do not offer a compelling omni-channel strategy the writing is on the wall.  They have too many stores and the stores they have are too big. They risk becoming showrooms for consumers that ultimately will buy on-line or from more price competitive and more convenient brick and mortar competitors.

For some, all is not lost. Smart investments in a seamless cross-channel “bricks and mobile” offering can allow them to capture customers regardless of which channel they prefer. Instead of investing in building more and bigger stores, they should invest in making the stores they have more relevant and differentiated, taking advantage of the unique capabilities of a physical location. There are plenty of customers willing to shop in stores with great design, great service and an overall remarkable experience.

For others, the future is bleak. For them, I’m reminded of the memorable line from the movie The Sixth Sense.

“I see dead people.They only see what they want to see. They don’t know they’re dead.”

3 thoughts on “Shrinkage. Be prepared for more cold water.

  1. Hi Steve,

    Interesting comment you made- ‘Smart investments in a seamless cross-channel “bricks and mobile” offering can allow them to capture customers regardless of which channel they prefer.’

    totally agree with you- but how do we get the multi channel retailers to breakdown their silos so they can leverage the biggest inventory warehouse in the world – their brick n mortar stores!

  2. Small formats are indeed the big news across the board for bricks and mortar retailers. Plus, as you point out, the key challenge today is to have an integrated presence which connects the online channel with the stores. Check out what Burberry has planned in China for their stores ( WSJ ).

    This move to integration of multi channels and smaller stores is a key strategy, to me, across the board – from mass retail to luxury. Walmart’s new strategy is to shrink their floorplates to ( for the Express format ) 15,000 s.f. which will enable them to seek smaller pieces of real estate in urban markets. Problem is, they may not know how to present an edited assortment in a meaningful way. The “Project Impact” makeover from 3 years ago has failed, and now they are trying to add back 8500 skus just when they need to shrink the store. How’s that going to work exactly?

    The “Big Box” of the 21st century is e-commerce. Customers are not interested in broad assortments unless it includes what they want. How stores are designed will need to change accordingly. Speaking as a retail designer, it’s whole new ballgame. But one fraught with opportunities.

  3. You got me with the title and kept me with content. My small community just lost it’s beloved Borders, which was crazy to even open such a large store here to begin with. I always felt they were offering a place for people to unwind in a pleasant atmosphere, where they could casually browse through thousands of books, finding those gems to then go home and buy online for much less. Too bad it was not until the close out sales hit that the brick prices matched the click.

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