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Big Boxes Are Discovering That Small Can Be Beautiful

Retail Real Estate Trend: “Right-Sizing” to Reach New Markets

It’s a retail real estate trend that began nearly a decade ago when Walmart and Home Depot began exploring the concept of smaller stores in or near urban centers. There’s been some bumps in the road, but it now appears that big box retailers can succeed as “small box” retailers. Eager to attract urban-oriented Millennials, as well as affluent empty nesters who have left the exburbs behind, major retailers are shedding square footage and creating accessible pint-sized versions of their massive models.

Unlike their big brothers, these minis range from 20,000 to 50,000 SF – a footprint that offsets the higher rents in densely populated areas. Instead of stocking “everything under one roof,” they offer a curated inventory matching local lifestyles. Companies are betting that proximity, convenience and branding will divert shoppers from their mobile screens and bring them into their neighborhood junior boxes to browse and buy. As regional leaders in commercial retail real estate, this is a trend we’re watching closely.

Hip Enclaves, City Centers, Inner Burbs, College Towns: Junior Boxes Are on the Move
Target, the leading upscale-downscale retailer, is offsetting the reduced traffic in its mammoth suburban stores, by going small in major metro areas like New York City and Chicago, in corporate hubs and in college towns. These new Targets, some at just 20,000 SF, feature hyper localized offerings. The State College, Pa. store, for example, features pantry items for dorm living plus Penn State fan merchandise. The Cupertino, CA Target, meanwhile, aims at Silicon Valley workers with grab-and-go lunches and techie gear. In many pint-sized, urban Targets, shoppers can pick up or return their online orders. Prices are on par with nearby suburban Targets, to avoid cannibalization. And Target is thinking big when it comes to rolling out these stores. There are over 30 already with more planned for 2017. Read more: http://www.wsj.com/articles/target-goes-after-younger-market-with-small-focused-stores-1475597213

Whole Foods has joined this retail real estate trend with a hip brand extension – 365 by Whole Foods Market, located in hot neighborhoods like LA’s Silver Lake and Portland’s Lake Oswego. Like Target’s junior format, these stores are smaller than their suburban counterparts. But unlike Target, prices are generally lower than in their traditional stores. The company sees its brand extension not only as a way to tap a desirable demographic, but as a “lab” for testing new products. Read more: http://www.latimes.com/business/la-fi-365-store-opening-20160525-snap-htmlstory.html

Walmart Tackles the Art of Thinking Small…Again
Walmart was a pioneer of “junior boxes” with its 12,000 SF Walmart Express stores. Launched as a pilot in 2011 and situated in major cities like Chicago, as well as small towns near the retailer’s home turf, the stores featured a limited selection of groceries, household supplies, beauty products and pharmacy. The competition was the dollar and drug stores, the 7/11s and Wawas that drew customers on price and convenience. But Walmart’s supercenter supply chain model simply couldn’t scale down and the 102 unprofitable mini-markets were shuttered last year in a chain-wide downsizing. Read more: http://www.marketwatch.com/story/wal-mart-to-close-walmart-express-stores-as-part-of-reorganization-2016-01-15

The world’s largest retailer hasn’t abandoned the “junior box” concept though. Its focus is now on its Neighborhood Markets. At 28,000 to 60,000 SF, these minis are just one-fifth the size of the typical supercenter. The 600-plus fleet of stores (85-95 more will be added this year) includes some urban locations (for example, Chicago and Minneapolis), but tend to be located in highly accessible inner suburbs. Groceries, household supplies, health and beauty products and pharmacy comprise the inventory, at Walmart’s “always low prices.” Traditional bargains plus greater accessibility, the company believes, will deliver a new wave of shoppers.

Junior Boxes: A Retail Real Estate Trend That’s Here to Stay?
A downsized generation of big boxes is going strong at present, with smaller Home Depot, Bed Bath and Beyond, and Lowes operating in non-traditional settings. It’s a big play to win Millennials and offset flagging traffic in some supercenters. Let’s keep watching.