Retail Insights

Small Is the Next Big Story in Retail

Local small businessBy now, you’ve heard the news that Target is launching new smaller stores under the CityTargets name. Likewise, Walmart continues to introduce smaller-scale stores as it seeks to expand into urban locales. Big-box retailer Best Buy is focused on its “community-oriented retail” concept with a smaller-is-better philosophy. But the downsizing efforts of these big boxes is not the big story that I am talking about. You can make a Target, Walmart or Best Buy store smaller in size, but you can’t make them smaller at heart.

The next big story for retail will be “small,” as in small, independent, local retail businesses.

A number of economic, cultural, and demographic trends are aligning to make the next 10 or so years a strong and potentially prosperous one for small independent local retailers who deliver new, different, personalized, specialized retailing experiences that no large national retailer can ever hope to achieve. Why? Because consumers today demand a true customer-centric retailing experience the way today’s specialty independent retailers deliver it, by both necessity and design.

Independence Is a Huge Competitive Advantage

While the Great Recession took out a wide swath of retailers — economic natural selection at work — the successful retailers that remain represent, by and large, the best and brightest.

They have come through the worst and emerged onto the other side stronger, smarter and more resilient.

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Further, the consumer culture is turning a page in favor of social justice, supporting locally owned, independent retailers who contribute to the community. People recognize that “Main Street” businesses create jobs, and the money spent locally stays in the community. The American Express-sponsored Small Business Saturday program and the growing “Made-in-America” movement support the concept of buying from small community-based independent retailers as an alternative to big, impersonal national brands.

The five-year Economic Census of Retail reveals that the number of retailers in operation dropped nearly 6% from 2007 (pre-recession) to 2012 (post-recession). With few exceptions, specialty retail stores traditionally owned by independent retailers experienced the greatest decline in number of stores. For example, the number of local florists, art dealers, stationers, home furnishings, luggage and leather goods stores, gift, souvenir shops, and furniture stores all lost 20% or more doors in the five years from 2007 to 2012.

While the number of small retailers declined, retail sales grew by nearly 8% during the same period. That can only mean one thing: Retail sales have become concentrated across a narrower band of larger retailers. In other words, the recession was a good time for big box and mass-market retail.

That was then. Today, the sameness and ubiquity of the big-box store experience is beginning to show fatigue. Walk through any of the nation’s 1,000 or so enclosed malls and you might notice they all look much the same. Filled with the same stores offering the same merchandise at the same “sale” price, it’s a discouraging monotony. It’s too much of the same thing. Consumers who have tired of the “austerity” lifestyle they adopted as a result of the recession are beginning to look for something new and different. The independent retailers that survived are poised to offer them just that, unlike the big boxes and mass retailers that keep on offering the same stale old options.

Big Retail Is Boring — Small Retailing Is More Interesting

The big national retailers, as much as they give lip service to attentive customer service, operate a business focused principally on selling products, not selling an experience. However, product alone no longer sets a retailer apart. Product, good product, and even quality product at really attractive prices, is available anywhere and everywhere. Shoppers are Internet savvy; they only need to go to the store to get products if they want to. Faster delivery from all categories of online retailers has made that trip of necessity a notion of the past.

The most successful specialty independent retailers operate in a rarefied realm. With a focus on serving the customer holistically, rather than just satisfying their product needs, specialty retailers can make the shopping experience relevant and personal for each and every customer. They can achieve a level of intimacy with customers that no mass retailer can. A PricewaterhouseCoopers and TNS Retail study, Retailing 2015: New Frontiers, reports a more indulgent consumer will increasingly seek out “niche products and experiences uniquely suited to their tastes, interests and aspirations.” This gives small independents a decided edge, and presents a huge challenge to national retail brands.

Demographic and Psychographic Shifts Will Favor Smaller, Local Stores

Demographic shifts will favor small specialty retailers in the coming decade. The maturing of the Baby Boomers, who will range in age from 56 to 74 in 2020, means customers who are looking for more personal retailing experiences. They have advanced to a life stage that has liberated them from childrearing and all the related expenses. But hey, guess what? Their kids want the same thing. Millennials want the only-about-me shopping experience for another reason: Because they can.

The PricewaterhouseCoopers/TNS Retail report says, “As they approach age 70, First-Wave Baby Boomers will be reaching a life stage where spending on many goods begins to decline. They will have new needs, driven by smaller households, increased emphasis on health and general welfare, and increased services demands as ‘help me’ replaces ‘DIY.’ They will have new requirements — smaller, closer, easier. And they will have new desires, such as quality of life, experiences, entertainment, enrichment, leisure and legacies.”

Then there’s the increasingly affluent customer base that also gives specialty independents an edge. These stores
generally sell things people desire, not just what they need. And the independents tend to cater to that sense of reward fulfillment, emblematic of affluent customers with discretionary dollars. While the middle class lost its spending power in the recession and has yet to recover, the affluent, defined as those at the top income quintile of the economy which starts just slightly above $100,000, have the incomes on which specialty independent retailers rely. The affluent are pragmatic shoppers; practical about buying commodities from mass-merchandisers, and passionate about fulfilling their desires in smaller shops where they know store owners and staff. They tend to demand to be treated with a high level of personal service, and expect a differentiated, experiential sell.

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Watch Out Big-Boxes; “Main Street” Stores Are Coming on Strong

Over the next 10 years, independents will thrive as multi-generational customers cut back on the one-size-fits-all approach of mass retail and the sameness that it engenders. They will seek these smaller stores for different reasons, based on their socio-economic, psychographic and demographic outlooks. As a result, growth at mass will slow down and profits will shrink. The next decade will see a great winnowing down, restructuring, and right sizing of mass-market retail, which will give a new opportunity to independent specialty retailers — as long as they get it right.

Today’s retail environment is ripe for inspired, creative independent specialty retailers to prosper. The secret of success is the ability for them to know — really know — their customers and deliver the valuable, unique shopping experiences these demanding, savvy, eager-to-be-pleased consumers crave. It’s not just about the stuff. It’s the personal experience.

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