Retail outlets and customer interest
Consumer interest in giant-sized retail outlets such as home furniture, big-box stores, discount mass merchants, and category-killer specialty stores seems to be waning as customers seek more convenience. Core consumer groups such as singles, young parents, and wealthy empty nesters are beginning to turn away from the potentially confusing size and variety of these megastores. Toys “R” Us has rearranged many of its stores into its customer-friendly Concept 2000 format, and other retailers are taking similar actions.
While most other retailers in this sprawling regional agglomeration of home furniture, big-box retailers, discount mass merchants and specialty stores are winding down after an uneventful Monday, the 60,000-square-foot book emporium is bustling. An in-store Starbucks cafe, sections dedicated to music, computer software and used books, and enough sofas and armchairs to furnish a Morris County mansion have drawn customers from miles around.
“I’ve heard [B&N] is a great place to meet people,” said Sloatsburg, N.Y., native Jenn ScanIon, a 23-year-old social sciences major, as she checks out a new paperback. “It’s supposedly replacing the bar scene,” added her companion, Glenn Norton, 28, of Park Ridge, N.J.
Retailers are increasingly turning the shopping experience into a social event, cramming a bevy of attractions and distractions into their hangar-like environs. Supercenters and warehouse clubs big enough to house the Spruce Goose are coupling radial tires and Ring Dings under one roof.Consumer electronics behemoth Incredible Universe is mixing karaoke and McDonald’s hamburgers with CPUs and VCRs, while megabookstores like B&N are hosting lecture series and poetry readings. But is bigger truly better?
Some retail experts and Wall Street analysts are beginning to warn that megastore formats packed with an endless selection of SKUs are alienating core consumer demographics from affluent empty nesters, who in theory ought to have the time to navigate the stores, to time-pressed young parents and single shoppers. While the die-hard bargain hunter may relish the allure of discovery amid a maze of aisles, less-driven shoppers often find the same format frustrating or intimidating.
Tradeoff of selection versus convenience
In the tradeoff of selection versus convenience, the growing legions of time-strapped Americans have demonstrated a preference for the latter, opting for prepared meals and pricier quick-hit trips to convenience stores and strip malls. Yet mass merchants have been expanding at a staggering pace into larger-format stores like Wal-Mart’s general-merchandise-and-food supercenters, which measure on average 188,000 square feet, and the 184,000-square-foot Incredible Universe consumer electronics/computer “gigastore.” For some, like B&N, the strategy seems to be working, but some observers think the trend soon may reach a point of diminishing returns.
“The big boxes are readily expanding in view of demographic [data] that reflects the opposite trend,” warned Gary A. Wright, a Denver-based retail consultant. Older consumers, for One group, are turned off by the prospect of parking on the fringe of a huge parking lot situated just off a highway, then lugging bulky packages back to the car, Wright said. Young parents with cranky kids in tow don’t have time to figure out a bewildering store layout. Single shoppers don’t necessarily want to waste precious afterwork or weekend hours indoors.
Disguise the size
Recognizing this, some retailers are learning to disguise their size. Instead of packing a bewildering assortment of SKUs onto floor-to-ceiling shelves, many are going with a more logical presentation. Wider aisles, shorter shelves, in-store boutiques and enhanced lighting have given them a look more akin to leaner, smaller competitors, despite having double or triple the SKU count. Many, in their advertising, are playing up not their vast selections, but rather their ability to provide personalized solutions to consumers’ problems, all while getting them into and out of the store quickly. And food retailers are building up offerings of prepared foods, offering the promise of greater convenience at the food preparation end of the process even if consumers must navigate large stores to pick up the products.
In an effort to shake its dubious reputation for unpleasant shopping experiences, Toys “R” Us this summer reformatted scores of stores, shedding the warehouse look in favor of a bright and spacious layout dubbed Concept 2000. It reduced SKUs by 4,000, lowered shelves and widened aisles. TRU plans to convert 55 stores in 1997, bringing the total to 98 stores by 1998.
“Customers think we have more products because they can see more,” says TRU’s vp of store planning, Mike Gerety. “The response has been overwhelming. The customer is clearly spending more time in the store and usually, hopefully, that equates to more sales.”
TRU is banking on similar results for its largest format yet, KidsWorld, which opened in Elizabeth, N.J,. and Fairfax, Va., last month. KidsWorld was designed “to pull all the synergies of the business into one format,” as Gerety put it. At between 85,000 and 95,000 square feet, KidsWorld is more than double the size of the traditional stores and holds thousands of TRU SKUs and those of its apparel and toddler siblings, Kids “R” Us and Babies “R” Us. There also is a candy store, a diner featuring Pizza Hut morsels, a Kids Foot Locker, a photography studio, kids hair salon and mini-amusement park.
TRU’s push comes at a time when specialty kid furniture such as recliner for kids, tables for kids, and toy retailers like Noodle KidDoodle, Zany Brainy and Imaginarium believe they can carve out a viable niche in the $17.5 billion toy store industry by stocking their shelves with educational and lesser-known brands and training knowledgeable, courteous sales staffs to create a less intimidating shopping experience. And the big guys are taking notice. Despite the added attractions at KidsWorld and Concept 2000, TRU maintains the primary goal of their reformatting initiative is to improve customer satisfaction.
Mass merchant Kmart is taking another tack to put a smaller face out to consumers. Under new chairman Floyd Hall, it has adopted a “high-frequency” strategy that stresses convenience by placing high-turn items near the store entrance to communicate to the time-strapped consumer that Kmart can be an in-and-out shopping experience. Next year, 400 Kmart stores will be converted to include an in-store Pantry, akin to an 8,700-square-foot supermarket, stocking some 7,000 SKUs such as paper products, pet supplies, beverages and eggs. To build on the perception of manageability communicated by the Pantry, the rest of the store has been reformatted with wider aisles, larger “airport” signage to identify departments, and improved interdepartmental sight lines to generate impulse purchases elsewhere in the store. Adjacencies have been rethought too. For instance, the “Kidsworld” department (children’s apparel and toys) has been moved to the front of the store next to the ladies department. “It’s all focused towards our core customer: women between the ages of 24 and 49 with kids at home,” said Bill Gryson, Kmart’s vp of special projects.
In the face of encroaching competition from discount mass merchants, drug chains, c-stores, supercenters and even gas stations, supermarkets also have been reinventing themselves. A new breed of megasupermarket, including Minneapolis-based Byerly’s and Wegmans of Rochester, N.Y., have created destination stores that draw customers in with an enticing lineup of prepared foods, quality private-label products and even cooking classes. Many are shifting emphasis from meal ingredients to meal solutions, offering a lure of convenience that can offset the large size of many of the stores. A new Wegmans in Pensfield, N.Y., includes a “Fresh to Go” section that stocks pasta sauces, soups, salads and 87 varieties of fish that can be cooked on-site at no extra cost, said Columbus, Ohio-based Elaine Pollack, director of Management Horizon’s Retail Intelligence System/Food, Drug, Mass.
The tradeoff between convenience and unlimited selection
The tradeoff between convenience and unlimited selection is a distinction that retailers would prefer to keep blurred, since consumers really would like to have both. In the past, retailers tried to overwhelm the consumer by creating the image that their store had an unmatched selection “to give the customer the feel that, ‘Oh my god, if this store doesn’t have it, nobody will,’” said Wright.
One format that tilts to selection over convenience is the flagging warehouse club. Their bulk packaging and membership fees have turned off all but small business owners and few have been able to establish a blueprint for mass appeal. Market leader Sam’s Warehouse Club, operated by Wal-Mart, now is resigned to this fact and will open just 10 new locations in 1996, matching the 1995 level, said Howard Eilenberg, a retail analyst for LJR Redbook Research, N.Y.
“I think membership warehouses and what they’re trying to do is pushing the envelope for what is too big,” Wright said.
Behemoth category killers are the biggest culprits at emphasizing their enormity, injecting an amusement park4ike feel to create a festive shopping experience. Some, like their defunct predecessor, the hypermarket, which swelled to over 230,000 square feet of retail space under one roof, have done a poor job managing their size.
Tandy’s Incredible Universe, the four-year-old electronics chain designed by Disney consultants, has received failing grades from Wall Street. From the outset, IU has been marketed as the ultimate consumer electronics/computer retailer, mixing an unmatched 85,000 SKUs, every-day low prices, interactive displays and entertainment to attract people to out-of-the-way sites and keep them there for the better part of the day. The stores, called “shows,” are replete with disc jockey booths, a rotunda and stage for merchandise demos, karaoke machines, a McDonald’s and Kidsview, a high-tech amusement area, to keep every member of the family occupied.
“The dwell factor is very important to us,” says Henry Schiarelli, IU’s vp/gm. “Admittedly, some people are overwhelmed, but we do a high repeat business” that’s greater even than Tandy blockbuster Radio Shack.
Wall Street analysts, chalking up the repeat business to the store’s faddish nature, are extremely pessimistic about the concept, saying the infusion of entertainment is distracting to the discerning techno shopper. And because IU is typically located in fringe areas, shoppers only frequent it on weekends, keeping sales well below what one analyst estimated to be the magic $325-per-square-foot breakeven point. As a result, analysts are forecasting the chain’s losses to double to $75 million this year; a disappointing holiday season could spell its demise, they predict. IU is proceeding cautiously, foregoing further expansion until sales pick up.
The closely watched IU experiment has provided valuable lessons to other big-box retailing execs, especially for furniture store and electronic products segments. One, in a noncompeting category, recently said he would only open larger-format stores one at a time, so that consumer demand could be monitored and adjustments made, and also will resist any temptation to bombard shoppers with side attractions.
For those sticking with large formats, specialty retailers are increasingly being imitated for insights into making the shopping trip more satisfying. Automotive aftercare outlets market themselves as the place to go for one-on-one consultation for perplexing repairs, while ads for the leading home improvement centers seldom refer to the store’s overall selection, but instead feature particular departments within the store and helpful staffers who can get the shopper out in a hurry.
If consumers are showing signs of resistance to some big-box formats, one exception so far seems to be the supercenters being set up by Kmart, Wal-Mart and, to a lesser extent, Target, which marry groceries and general merchandise items under one roof in a manner that allows dual-wage-earner families to consolidate shipping trips.
Analysts remain bullish on the com cept, which should double in the next three years to 1,500 with projected revenues exceeding $100 billion, said Mary Beth Whitfield, a principal retail consultant for Price Waterhouse’s Management Horizons unit in New York. By driving repeat business, “It’s a win-win situation,” said Redbook’s Eilenberg. “They’re getting market share from food retailers and getting additional sales in the general merchandise side.”