May 6 2014, 12:14pm CDT | by Forbes
As digitally savvy shoppers continue to drive today’s retail environment, companies are being forced to strategically re-think their store footprint to be more relevant with these consumers. Increasingly, these important decisions have been moved into the boardroom, as real estate can be the most critical factor in a retailer’s operating and growth strategy and a key driver in unlocking value. Investors are demanding that retailers reassess their real estate to maximize their space, and we’re finding that as they do so, there is no longer a one size fits all model.
While in the past, a retailer’s needs might have consistently been a 1,500 square foot store in an “A” mall, today, there is a lot more to consider. Every retailer needs to address their real estate strategy in each of the markets they serve, and identify the right size space that makes sense for their business. This means smaller spaces for some, and larger spaces for others.
We’ve seen big box retailers like Best Buy and Staples move to smaller spaces to better serve the digitally savvy consumer, while others, such as leading men’s big and tall apparel retailer Destination XL, is catering to its customer with larger format stores to showcase its premium brand merchandise in wider aisles, with larger fitting rooms, sofas, chairs and flat-screen televisions.
Further, as demand for Michael Kors products continues to grow, it is capitalizing on its strong opportunities with aggressive expansion in the U.S., as well as in Europe and China. Having successfully expanded beyond apparel into handbags, small leather goods, eyewear, jewelry, watches, and footwear, the renowned global lifestyle brand has been moving to larger store formats to accommodate its growing number of product categories. Constantly delivering new innovation to its customers, the brand continues to grow its global footprint.
Conversely, some retailers are redesigning their stores to occupy a smaller footprint in order to greater utilize their space. Contemporary apparel retailer Scoop, for example, has begun moving to smaller spaces to provide a more exclusive experience for its customers. With less duplicative product, and a more intimate environment, Scoop is enhancing its customer shopping experience, while lowering overhead cost and increasing sales.
We are also seeing companies re-think their footprint, as they expand with new retail concepts. In an effort to reach different segments of the population, J. Crew is speculated to be developing a new store format aimed at budget-conscious shoppers, according to a recent Wall Street Journal article. If so, you can expect the retailer will look for appropriate locations, markets, and store sizes to attract this target customer.
So how should retailers evaluate their square footage?
There are a number of factors to consider when assessing a retailer’s footprint, and each neighborhood needs to be addressed individually. Importantly, a retailer will want to know the market potential in the given area. What is the population threshold, and could this location present further opportunities? A retailer will also want to seek out any competition and determine if there is already oversaturation in its market niche or if it is strong enough to carry another retailer in that space. Further, who are the co-tenancies? Is the retailer’s customer already there? After a thorough evaluation, a retailer can appropriately determine its ideal square footage.
As retailers remain committed to driving shoppers back into the store, they have a lot to consider in terms of re-thinking their store footprint to align with today’s sophisticated consumers. At the same time, rental costs have risen dramatically in the last few years as new developments have slowed, which is forcing retailers to refocus their real estate strategies to maximize square footage and sales. While this is driving some retailers to reduce their number of stores and relocate to smaller spaces, it is driving others to increase square footage and open additional stores. Clearly, there is not a one-size fits all approach. Retailers need to develop the optimal strategies in the appropriate markets, location and space that make sense for their business.
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