Mini Versions of Big-Box Stores

BOTHELL, Wash. — During the current economic downturn, as many companies are closing stores and cutting costs, it might seem counterintuitive to be opening new stores.
Not here in Bothell, around 20 miles northeast of Seattle, where in January, OfficeMax opened one of its three new concept stores in the Seattle area that offer a pared-down selection of its most popular products. Each of the new stores, called Ink Paper Scissors, covers only 2,000 square feet — about a ninth the size of a typical OfficeMax — and offers basics like copy-making supplies and printer-cartridge refills.
Retailers like OfficeMax are opening scaled-down versions of their stores or inventing outlets entirely to test new concepts without a hefty investment. The stores are a relatively safe bet despite the recession because the space is cheaper and the stores require less inventory, fewer employees and smaller spaces.
OfficeMax is not the only retailer giving new concept stores a try. Most are significantly smaller than their typical stores and focus on one set of products. Last year, for example, Wal-Mart opened four specialty food stores in the Phoenix area, RadioShack unveiled three high-end wireless shops in Dallas, and Best Buy created 30 mobile phone stores.
“If you’ve got the wherewithal, everyone is thinking about smaller sizes,” said Lee Peterson, vice president for brand and creative services at WD Partners in Columbus, Ohio, which has helped retailers design these stores.
More small-format and new-concept stores are likely to be on the way as retailers try to lure customers back, according to a survey of retailers, manufacturers and consultants. Nearly 46 percent of the respondents said they expected the number of formats to increase in the next five years, according to a survey in February by Dechert-Hampe & Company, a marketplace management consultancy.
The stores are opening even as some companies are declaring bankruptcy, closing stores and reporting double-digit earnings drops. As the economy contracts and consumers tighten their spending, more closings are likely. In March, the most recent data available, Americans were saving 4.2 percent of their income, after taxes, up from 0.2 percent a year earlier, according to the Commerce Department.
“Obviously, it’s not an optimal time,” said Ryan Vero, OfficeMax’s chief merchandising officer. “But this makes for a great test — it can’t be any worse.”
Smaller formats also allow companies to enter new markets in urban or rural areas that they had bypassed during the boom. They can get into a market, test a new concept and get out quickly if it doesn’t work.
The Lowe’s Companies, the home repair giant, has been hit hard by the housing downturn and has cut its new store openings to 60 to 70 this year, from 115 last year. But the company, which is based in Mooresville, N.C., is also experimenting with scaled-back stores in new markets. Lowe’s has slowed its plans to open stores in the hard-hit states of Florida, Arizona and California, and is aiming at the Midwest and rural communities far from its warehouse stores.
Last year, Lowe’s opened two scaled-down versions of 66,000 square feet and 80,000 square feet. An average Lowe’s store is 117,000 square feet.
Many retailers don’t want to cease opening new stores altogether during the downturn, because doing so could harm future earnings. It can take up to three years to develop and open a store. But opening during a recession can position a retailer for success when the economy turns.
“Retailers have pulled back the reins somewhat, but they’re not going to pull back entirely,” said Daniel Butler, vice president of retail operations at the National Retail Federation in Washington.
Smaller stores are also cheaper and less risky. An average Lowe’s costs $20 million to $22 million to build, not including inventory. Smaller stores save the chain an average of almost 10 percent, or $1.9 million, per store.
They also can attract new customers who might be put off by larger stores or consumers who shop mostly online. Downsized or concept stores are more convenient and take less time to visit than a large store. Lines are typically shorter, and the shopping aisles can be easier to navigate.
In some ways, retailers are going back to their roots, evoking the corner store. At many new stores, personalized service is being emphasized, like explaining the features of a product.
“Consumers want stores that are more convenient, less time-consuming and more personal,” said Ben Ball, senior vice president at Dechert-Hampe & Company. “There is such a thing as too much variety.”
Best Buy is aiming to lure people away from their computers and into their new Best Buy Mobile stores with a selection of 90 cellphones and service plans from nine carriers.
Most of the stand-alone shops are 900 to 1,200 square feet, versus 40,000 square feet for a big-box Best Buy. Some 3,000-square-foot versions have also opened. Best Buy now has 40 stand-alone stores and plans more.
Best Buy is focusing on the cellphone and smartphone market because the segment is expected to keep growing and the company needs to shore up flagging earnings. Best Buy’s goal is to have 10 percent of the country’s cellphone market, up from about 3 percent now.
“We’ve been in the mobile business for years, but despite our best efforts, we haven’t been able to make much impact in cellphones,” said Scott Moore, vice president of marketing for Best Buy Mobile.
RadioShack is also eyeing the wireless market. In December, the company opened three Point Mobl stores in the Dallas area; they carry smartphones, among other electronics items. Each store is 1,500 square feet, or about the size of a typical RadioShack. The new stores do not mention the parent company.
Retailing professionals doubt the experimentation with store formats is over. “It’s a very liquid time for retailers,” said Mr. Peterson at WD Partners. “ ‘Let’s try it’ is now the mantra.”