Retailers, restaurants downsize for lower costs

KANSAS CITY, Mo. — To Neng Yang, the Best Buy store in Independence, Mo., is just too overwhelming – so much so that she only shops there once a year, during the holidays.

So when she needed a new cellphone, she bypassed the 55,000-square-foot store with its many departments – appliances, big-screen TVs, computers, cameras, car audio, video and music. Instead, she stopped across the street at the Best Buy Mobile store.

The slimmed-down 850-square-foot sister store concentrates only on mobile devices.

“I ask about a thousand questions, and this is more personalized, more one-on-one attention,” said Yang of Blue Springs, Mo.

Yang bought a white Droid Razr, and her brother, John Yang, picked up a black one.

Bigger is not always better. Just ask the biggest retailers in the country – and their customers.

The recession and the growth of online shopping have conspired to cut chains down to size. One strategy they’ve employed has been to close underperforming stores. But Best Buy and an increasing number of companies are trying another strategy too – going smaller.

Among the retailers testing smaller concepts are Blockbuster, Ann Taylor, the Gap, Kohl’s, Lowe’s and Sports Authority. RadioShack is even trying a “store-within-a-store” format in several OfficeMax stores in California.

Restaurants are also thinking small, including Leawood, Kan.-based Houlihan’s Restaurants Inc., which has restaurants in 17 states.

Lower square footage makes for lower construction and remodeling costs, and that also tends to make them easier to finance. The smaller locations have less overhead costs and can be manned by fewer employees.

The small size also gives the chains more flexibility in locations, allowing them to squeeze into heavily developed urban centers, and compact spaces in airports, college campuses and strip centers. If the location isn’t successful, the chains can close the sites down with less financial fallout.

“For a decade it was ‘build it and they will come,’” said Candace Corlett, president of WSL Strategic Retail in New York. “It’s definitely a correction for retailers as well as restaurants, a direct result of consumers not having as much to spend on the extras. The strategy has to be to reduce your costs to offset less traffic. Usually that means less rent, shrinking retail and restaurants.”

Jeff Green, president of Jeff Green Partners, Phoenix-based real estate consultants, has long criticized the “bigger is better” movement.

“They think the bigger they are the more exciting they are and that’s not necessarily the case, as Apple has proven,” Green said. “Consumers like the smaller stores, like to be part of a ‘happening,’ and smaller stores have that feel.”

When retailers like Ann Taylor, Chico’s and the Gap opened larger stores, they didn’t necessarily see an equivalent rise in sales, if any rise at all, that would justify the added expense, Green said.

“Any retailer that is opening larger and larger stores, I question their long-term viability,” Green said. “Costco and Sam’s Club defy that theory. That’s because consumers really perceive them as great values and value trumps the inconvenience of size.”

Best Buy introduced its mobile locations in 2007 and there are currently about 260 nationwide versus 1,100 full-size stores.

Still, consumers who have come to know a brand as a “category killer” might be confused by the new concept.

Wal-Mart’s new Neighborhood Stores concept is designed to provide shoppers with a quick, convenient stop for fresh produce, dairy items, and pharmacy products at low prices. The grocery stores are about 29,000 square feet compared to a 142,000-square-foot supercenter.

But some grocery store shoppers still expect to see the large selections of products Wal-Mart is known for.