Big Box Retailers Thinking Outside the Box

March 2015

One size fits all? For some brands, that may not always be the case. Big box retailers who have historically relied on cost-conscious customers looking for one-stop shopping destinations are now searching for ways to boost their top line as the economy improves and consumer preferences shift away from large, all-in-one shopping trips.

According to recent research, three interesting consumer trends appear to be emerging, which may help explain why some big box retailers have recently experienced slowed foot traffic and softer performance at their largest stores. On one hand, a recent Nielsen survey indicates that consumers have a growing desire to make “in and out” shopping trips that meet short-term needs. Meanwhile, recent research from Goldman Sachs suggests that shoppers are interested more in convenience than in having access to the vast in-store product assortment offered by big box retailers. This focus on convenience may be further amplified by Millennials and Gen Xers’ increased desire to live—and shop—in urban centers, where traditional big box stores have less of a presence and market share. My colleague Stuart Eisenberg, leader of BDO’s Real Estate practice, just wrote about this trend in a recent Commercial Property Executive article.

Combined, this desire for quick and convenient shopping is presenting a challenge for big box stores, as consumers appear less motivated to peruse 100,000 plus square foot mega-stores for individual items when they can run into a local market or buy online. Still, some retailers are embracing the challenge and transforming to meet customers’ evolving preferences and expectations. In addition to bolstering digital platforms and focusing on omnichannel offerings to more effectively compete with e-commerce behemoths like Amazon, these retailers are thinking outside the box and revamping their store formats to attract customers:

Target’s decision to pull out of Canada this year has prompted industry observers to note that the big box landscape is evolving, and retailers’ strategies may need revamping to attract and retain loyal customers. To resonate with a wider customer base beyond suburban audiences, Target plans to open additional smaller-format CityTarget and TargetExpress stores aimed at urban shoppers. In their test phases, these stores have proven to be more profitable than traditional Target supercenters—another signal that consumers still appreciate big box brands, but may increasingly prefer to shop in more compact, easy-to-navigate stores. While CityTarget locations offer a product breadth similar to that of regular stores in a tighter physical space, TargetExpress is an even smaller store concept that features more select merchandise designed for quick shopping trips.

K-Mart plans to transition five of its remaining eleven Super Kmart stores to smaller format “K-Fresh” stores that will replace service-oriented departments with prepackaged items.  Doing away with fresh butcher, deli and bakery service departments in favor of prepackaged goods allows the retailer to cut costs by reducing staff and floor square footage while providing customers with the opportunity to shop more quickly and easily. At the same time, some supercenter locations are optimizing their space by repurposing flexible areas to serve as fulfillment centers for online orders or subleasing their square footage to new tenants.

Walmart, notorious for its frequent experimentation with store formats, is now testing a concept aimed at providing customers with options for “stock-up” and “fill-in” shopping trips. Walmart is seeking to gain market share and capture consumer dollars by changing the layout and focus of its various stores, offering customers the option to tailor their experiences based on specific shopping needs. The company is focused on ramping up the expansion of smaller stores, with plans to open more Wal-Mart Express and Walmart Neighborhood Market units, in addition to experimenting with Walmart-To-Go stores and even introducing an internet grocery pick-up center.

How does your organization assess and prepare for shifts in consumers’ shopping habits?