Retail Management 12th Edition by Barry Berman ,Joel Evans

Exercise 22

Case 1: Adapting Store Size to the Type of Location
A significant trend among mass merchants is the greater use of small prototype stores rather than their big-box format. Wal-Mart (www.walmart.com) is opening a number of smaller stores (ranging in size from 30,000 to 60,000 square feet), mostly in urban areas. An extreme example of this new store format is a 3,500-square-foot "Wal-Mart on Campus" store located at the University of Arkansas.
Target Corporation (www.target.com) is using small-store formats as part of its expansion plans in Seattle, Baltimore, and San Francisco. Target's prototype store for these urban markets ranges in size from 60,000 to 100,000 square feet. Target currently has about 150 stores in urban areas, including a location in New York City's East Harlem area. In addition, Kohl's (www.kohls.com), Old Navy (www.oldnavy.com), Gap (www.gap.com), and numerous other retailers are looking at downsized stores at their newer locations.
For many big-box store chains, smaller prototypes are an ideal way to capitalize on opportunities in urban cities, where rents are generally high. These areas are densely populated, accessible by mass transportation, and have available full-time and part-time help. Despite their potential, only about 50 of Wal-Mart's thousands of U.S. stores are located in major cities. Wal-Mart also has no store in New York City, and only two stores in Los Angeles.
Smaller stores are also an ideal way for retailers to open new units in locations that were vacated by such defunct retailers as Circuit City, Steve Barry's, Borders, and Mervyn's. When Kohl's took over locations that were formerly used by Mervyn's, Kohl's was compelled to reduce its store footprint.
The Limited (www.limited.com) and Home Depot (www.homedepot.com) have used reduced-size store prototypes as a means of utilizing small, but highly desirable, locations. And there are other reasons why smaller stores make sense. These stores have lower rental and operating expenses. Older shoppers often like smaller stores because they reduce shopping time and the need to walk through larger stores. For major retail chains, smaller-store formats have less trading-area overlap with existing stores than bigger stores. Small stores can meet the demands of markets that could not be economically feasible with a larger store. Lastly, smaller stores in existing market areas can better utilize a chain's existing distribution centers than larger stores located in more distant locations.
A vital strategic issue involving the use of smaller-store formats relates to the appropriate level of merchandise selection. One potential problem associated with small stores is the need for faster inventory replenishment due to their smaller storage areas. Merchandise selection in smaller formats also needs to be more carefully planned to ensure that it includes relevant goods and services appropriate for the store's customers. Some reductions in inventory selection are simple to implement. For example, urban apartment dwellers have limited capabilities to store bulk purchases of paper towels and no need for patio furniture, snow blowers, and garden supplies. Other reductions that are more difficult to plan include color choices, size distributions, and so forth. One way of providing sufficient assortment in a small space is to enable customers to order merchandise on the Web (via an in-store kiosk) and have it shipped to the store for pickup by consumers or shipped directly to shoppers' homes.
1. Under what conditions should a large box store retailer like a Best Buy pursue a small-store strategy
2. Would the population characteristics of a small store's trading area differ from that of a larger store Why or why not
3. Discuss the concept of trading-area overlap from the perspective of small- versus large-store formats.
4. Explain how small-store formats could be a means of capitalizing on trading areas where a large-format retailer is understored.