234-Sometimes Smaller is Better

Retailers suffered through the last two years with low or declining sales as typical consumers struggled with an economy in the doldrums. Some of these retailers experimented with cost cutting and discovered an innovation for customers.

As retail demand fell, some retailers decided to reduce the size of their stores and cut their inventories to fit the smaller market they were facing. One company, Anchor Blue, put in temporary walls and cut its selling space in half. This certainly saved them money. It also provided a big surprise. Anchor Blue found that its foot traffic rose by 7% and sales increased by 23% after the remodel.

As other stores had the same experience, bigger chains began their own small-is-beautiful experiments. Bloomingdales and Nike are both trying smaller stores. Retailers are reducing their inventories by removing the slower moving items. These changes enable their customers to find, choose and pay for their products faster. In other words, the smaller stores are a Convenience innovation that customers seem to like.

We seem to be reaching a limit in the retail world. For the last generation, retailers grew by increasing Functions in ever-larger stores. (See the Perspective, “When to Compete on Features” on StrategyStreet.com.) They added categories and assortments to increase customer choices. These Function innovations demanded more space. More choices and space added to the time customers had to spend at a store. The Convenience innovation of the smaller stores suggests that customers have reached saturation points with the larger stores offering more choices. Sometimes smaller is better. (See the Perspective, “Is Bigger Really Better?” on StrategyStreet.com.)

Posted 12/13/10

Update:

Anchor Blue failed and liquidated its business in 2011.

The advantages and growth of online shopping has brought increasing SKUs to most retailers. The number of SKUs in the average grocery store is approaching 16,000, a number that has increased in the last few years. Larger format stores carry up to 60,000 SKUs. Supercenters carry even more.

Market specialists provide the consumer with choices between Function and Convenience. These specialists tend to stick to their strict customer focus. For example, traditional supermarkets offer wide product choices to the typical consumer, a Function benefit. The Convenience specialists include Performance Leader convenience stores and small format Price Leader competitors such as Aldi and Save – A – Lot.   It is dangerous for a Price Point Leader company to stray from its roots. It would meet too many competent competitors. See HERE for more on Price Points.

11/22

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