The Real Value of Small

The Real Value of Small

Retail is in crisis today. Every day another story emerges of plunging revenues, shuttering stores, failing malls or well-recognized brands going bankrupt. But why is this happening, and why now? Theories abound. Unfortunately for the business journalists and media pundits, the answers are complex and uneven, depending on geography, industry and a host of other factors. While retail is in crisis, not all of retail is in crisis. Nor is every industry, brand, format or neighborhood type.

One of the dynamic features of retail strategy and design that Shook Kelley has been studying closely is contrast. In particular, what’s the difference between big vs small retail spaces, and complex vs simple retail brands? If retailers need to change—and we believe that many, if not most retail brands do, today—how can they create bigger impacts with smaller footprints? And how might they use the power of strategic design to reduce complexity and offer a simpler, more meaningful and more powerful brand message?

Small retail for big cities.

In a recent article for the business pages of the Charlotte Observer, Shook Kelley co-founder Kevin Kelley shared insights for how retailers can be relevant in new, smaller urban locations. Trends in urban commercial development today are moving towards greater density for many cities around the nation, and that has major implications for retail. As Kevin notes, “It’s getting more challenging nationwide. There aren’t a lot of big spaces anymore.”

Because space is more precious and valuable in these tighter urban zones, retailers and their developer partners need to make sure there’s a rewarding payoff for every feature included in their space. At the same time, retailers need to innovate, and introduce new and unexpected elements into their sites, because the traditional retail formulas don’t work as well with the newer, younger urban audiences attracted to these neighborhoods. So if you want a customer to take the escalator up to the second floor of an urban grocery store, there better be a payoff, like a great coffee bar, an interesting fast casual restaurant concept or maybe a cooking school.

Traditional retail formats, particularly traditional grocery stores, are especially vulnerable, as smaller, more focused specialty brands, like Trader Joe’s, Aldi and now Lidl are growing rapidly. Their smaller footprints give these upstart brands an opportunity to more easily fit into smaller urban spaces. 

How can more traditional retailers respond? As Kevin states, “We’re pleading with stores: Learn to think small.”

And of course, a lot of brands have already recognized this trend. Big traditional retailers are trying to find ways to downsize their formats. Target launched its smaller format City Target in 2012, and has been refining the model since. City Targets are less than half the size of the Super Target, and they’re also more expensive to build and operate. Nordstrom is about to launch Nordstrom Local in October, which will experiment with new delivery formats, in-store attractions and service offerings. It looks like Nordstrom will be directing customers to their personal stylists at the store, in order to better customize the shopping experience for them.

But what exactly would downsizing mean? Fewer categories, fewer SKUs, fewer products fewer square feet? Is it a quantitative challenge? Or is it, as Kevin points out, more about how stores and brands “think”?

Small is not simple for everyone.

In our experience working with retail brands, we’ve found that going small is not only a challenge for spatial design or allocation. If taken seriously, smaller formats also represent a challenge to redesign organizations, internal cultures, brands and strategies.

Traditional retailers need to learn how to think small to get small. But how? Editing is a crucial first step, which is essential to the process of design. By editing, we’re talking about carefully curating a selection of products, specifically chosen for targeted audiences of consumers, for the sake of providing solutions, inspiring new ideas and generating engagement. Shook Kelley experience design then works to tell those stories and highlight certain products or entire categories relevant to customers. Unfortunately for retailers, getting to a smaller, more well-edited product mix is far from simple. As Kevin notes in the Charlotte Observer article, traditional and legacy retailers fiercely resist downsizing anything in their stores: “‘No, no – we have to have 70 feet of sodas.’ Even though soda sales are going down…Grocery stores are trying to figure out how to be more nimble.” 

Strategic editing is not about reducing size, but increasing simplicity—simplicity for the customer who is shopping. On any given day, the average American is increasingly bombarded by a vast flood of information, in retail options, food menus, media sources, advertising and much more. After a long day, the last thing people want when they head to a store is too many options. Instead, they find value in retail brands that offer fewer choices, all within a range of desirable options. They want a selection that both solves their immediate problems (e.g. “I need bread and milk”) and may also inspire them to consider a few new ideas (e.g. “I’ve never tried that beer before” or “that shirt would look good on me”).

Retailers need to accomplish more with less space.

In the past, a traditional retailer problem has been: How do we please customers? And their answer has typically been: by offering everything that anyone could possibly want. Bigger spaces, more product, “Pile it high and let it fly.” But now that many retailers need to accomplish more with less space, they are understandably resisting change. Where to cut?, they ask. How do we condense? We have also found that retailer clients persistently defend the age old concept of “one-stop shopping.” Many retailers refuse to edit their product mix because reducing SKUs might mean customers may have to shop elsewhere for a few items. And they hang on to this orthodoxy, despite abundant evidence of increased multi-channel shopping behaviors.

“Some people think it’s the end of grocery stores,” Kevin says. “I don’t. I do believe it’s a reinvention, a new era in the way we live.” In other words, if the traditional grocery store was defined by a full shop with an always expanding inventory of new products, the contemporary grocery store—still a grocery store, mind you—needs more focus and a stronger point-of-view.

Bill Bishop, retail analyst at “Bricks Meets Clicks” who has been working in the food retail industry for many decades, argues that the new smaller store brands, like Trader Joe’s, Aldi and Lidl, have struck on a superior model than their bigger traditional counterparts. “It’s not truly just ‘small,’” Bishop writes, “it’s simple.” The challenge for the big traditional retailers is that over the years they have introduced more and more SKUs, categories and departments. The result is not just increased size, but increased complexity. And managing all this complexity leads to a lack of focus. Bishop argues, “It’s not that the bigger competitors are ‘dumb,’ far from it. It’s just that, all things being equal, a group of people who are focused are going to perform better on any given task than a group of people who are unfocused and maladjusted.” That’s well stated.

So, for Aldi, small means simple. But that doesn’t necessarily mean it’s easy, even if they make simple look easy. In a recent front page Wall Street Journal report on Aldi’s “idiosyncratic playbook,” they describe the retailer’s unique strategy as: “a deliberately pared-down selection, sometimes a tiny fraction of the number of items sold by rivals, which helps Aldi cut costs to levels U.S. grocers can only dream of. Among other benefits, fewer items means faster turnover, smaller stores, less rent, lower energy costs and fewer staff to stock the shelves … By keeping costs low, the Spartan assortment allowed the founders to sell their inventory for less and turn it over at lightning speed, boosting profit margins, according to former executives.”

Customers want clarity.

Now, from an internal supply-side perspective, both Bishop and the Wall Street Journal are right that most traditional retailers lack focus, or are sometimes confused by the choices available to them. And we might bet that product brands, manufacturers and consumer packaged goods companies aren’t helping those traditional retailers very much. In fact, it’s likely in their interests to continue expanding SKU counts, so that they can further innovate their lines of product brands.

But while operators and investors are focused on the logistical brilliance of Aldi’s simplicity, the appeal to the consumer should not be overlooked. In fact, the consumer’s desire for simplification of everyday life might arguably exceed any business or operational metric.

An external demand-size perspective is what should ultimately be driving more retailers towards simplicity. When it comes to physical shopping experiences especially, customers want clarity. Retail brands that can be good editors will give customers the peace of mind to arrive at their store knowing that they can’t make a bad choice here. That also allows customers to try new things and better engage. Retailers who can figure this out will be the ones generating value and loyalty.


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