The Big Opportunity With Small-Format Retail

If I wanted to wait in a long line, wander aimlessly and have my personal space invaded, I would have gone to a theme park. Unfortunately, this type of inconvenience is penetrating the big-box shopping experience, and with more on-the-go consumers than ever, people are heading to smaller-format stores (not to mention the smallest format of all — their phones) to get the kind of retail journey that encompasses their lifestyles.

Before I go any further, let me get this out of the way: this trend isn’t new. I’ve seen it around the world, especially while trekking through Asia, where smaller stores embody convenience, experience and a one-stop-shop approach. On my travels, I’ve sat outside 7-Elevens in South Korea, eating ramen prepared with fresh kimchi and eggs that I purchased in-store. In Japan, what I consider to be the global capital of convenience, I’ve gotten hot food out of a vending machine and, believe it or not, I actually enjoyed it.

For years, large-scale stores in the U.S. seemed unmoved by this international trend. However, recently the demand for more convenient, smaller-format stores has hit our borders. Today, even the biggest names in retail are learning how to downsize.

There are several reasons it has taken us this long to catch up with this retail trend, but our fingers are pointing toward American consumer shifts as the main one. With smaller households, two-thirds of the population living in urban areas by 2050, and a demand for smaller-sized products, packaging and price tags, there’s no time like the present for companies to jump on the new format bandwagon. Big names are taking this in stride and changing things up to maintain their spot at the top.

Here are some examples of how big businesses are evolving with this movement, as well as some recommendations on what you can do, too:

• Focus on what you can’t get online. Nordstrom recently announced a new concept — a store without inventory called Nordstrom Local. At these locations, there will be no browsing or picking up arm loads of clothing. Instead, the upscale department store chain will allow for in-store pickup and offer rooms where personal stylists transfer merchandise to customers (with the option of same-day delivery). With the majority of items now available online, stores must focus on service as a differentiator, especially since 72 percent of millennials prefer experiences to product. Ask yourself how you can improve customer service in-store and online with innovations in format and omnichannel experiences.
• Make shopping easy. Target is using smaller formats to get “in” with millennial consumers by pushing small stores near college campuses. The retailer is making shopping easier than ever by tapping into an on-the-go lifestyle and gaining a better understanding of shoppers through data analysis. Target is going one step further by giving free rides to students, offering ready-made food and turning stores into ecosystems with the integration of Starbucks, CVS Pharmacy and more. Kantar Retail found that nearly six in 10 shoppers now rank “having a stress-free experience” among their four most important factors when shopping, which all retailers should take to heart. Analyze your store and determine what the biggest shopping hurdles are for your customers, then make a plan of attack.
• Get personal. After Sephora saw a decline in foot traffic at its traditional brick-and mortar-locations, it knew it had to step outside of malls. By opening Sephora Studio, the beauty retailer is hoping to create an inclusive retail environment with digital tools that allow beauty advisors to customize recommendations. Personalization has become increasingly important over the years, as 77 percent of consumers have chosen, recommended or paid more for a brand that provides a personalized service or experience. Get to know your customers through surveys and data analysis to determine what’s important to them and how to make an authentic connection that transcends the one-size-fits-all attitude.
• Call a spade a spade. Bodega, the company offering pantry boxes with nonperishable items at frequently visited locations, recently learned a hard lesson on branding. With its namesake influenced by the stores it’s looking to replace — mom-and-pop shops — and a logo featuring a cat (an animal known to inhabit these shops), the company hit an ugly chord. People saw Bodega as a symbol of gentrification and immigrant culture appropriation. As companies look to incorporate small-format stores into their business plans, it’s important to understand how they will impact the neighborhood they enter. Only 22 percent of brands are trusted, so brands must make sure to keep their intentions authentic.

Small-format retail now represents a $1 trillion market and the growth of this category shows no signs of slowing down. While this strategy may not be for everyone, incorporating some of its elements could be the key to a successful future.

Jim Holbrook is the CEO of Daymon, a provider of expert global retail strategies and services.