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Rethinking big boxes

How hypermarkets will evolve

Big stores are getting smaller across Canada. In September, Walmart president David Cheesewright, asserted that Canada’s largest Supercentre prototypes are now only 140,000 square feet, versus the stores that reached up to 200,000 square feet in the past.

Likewise, Loblaw is also curbing the size of its Superstores, stating plans for stores to now average 90,000 square feet in Western Canada.  The retailer is also focusing attention to smaller concepts, such as The Box, which is less than half the size of a typical No Frills store. Broadly, the goal is to get smaller. Loblaw’s president, Galen Weston told investor in July, “We will be reducing the size of all our stores.”

The shift to smaller boxes is also happening in the U.S., and it often leads to two questions:  Why are the retailers shrinking their stores and what will new hypermarkets look like?

One reason for store shrinkage is that it’s easier for smaller stores to reach urban areas. With space more expensive in such locations, retailers are rethinking the floor to focus on more productive, traffic-driving departments. Walmart’s Urban 90 prototype in Scarborough is a good example of this, where the retailer opened a Supercentre 36% smaller than average to fit on the lot.

Another, perhaps more important, reason is falling sales productivity in hypermarkets, particularly in the general merchandise side of the box. As categories such as books and music turn digital and others, like apparel and consumer electronics, are increasingly sold online, the stores do not need as much physical space dedicated to these departments. With these shifts, we’re seeing retailers rethink how they allocate the remaining store space.

This leads into the next question of how hypermarkets will reposition to better serve shoppers.

Walmart and Loblaw’s Superstore have already been remodelling to cut space allocated to general merchandise and add emphasis on fresh food.  At Walmart, it is emphasizing discount store conversions to Supercentres within the existing box – adding a full grocery assortment without adding floor space. Kantar Retail projects this type of conversion will account for roughly one-in-four of its total Supercentre base by 2017.

Conversely, Loblaw’s “right-hand side” Superstore remodels will be complete by the end of this year. These remodels cut roughly 25% of the space from general merchandise to refocus the area on beauty, kids, Joe Fresh, and basic home items.

In addition to losing space, underperforming department presentations are also being rethought. For instance, Walmart’s entertainment section in the U.S. and Canada has been remodeled to feature interactive displays, brands, and screens to elevate the experience.  Expect the presentation in other underperforming areas, such as dry grocery and non-edible grocery, to likewise be reimagined.

Also anticipate that retailers will develop new means to drive customer traffic to their big stores.  Loblaw’s Weston explicitly told investors earlier this year that the company is looking at opportunities to allocate some larger store space to complementary services. Given that many Superstores are already outfitted with a fitness centre and community room, this suggests that the retailer may probe more deeply, perhaps by offering certificate courses in its community rooms, or into new directions, such as adding basic dental or pet services.

The other facet to watch is reallocating store space for multi-channel services.  In the U.S., Walmart already uses approximately 80 stores to ship online orders, to customers’ homes.  It also offers services such as Pick-Up Today where shoppers can order online and receive their basket at the customer service desk on the same day.  Taking the notion further, management is experimenting with online grocery ordering and drive-thru pickup at select Supercenters in Colorado.  This type of reallocation of store space to service new, convenient ways to shop is something that we expect to advance.

For vendors working with these retailers, there are several implications to anticipate as larger stores evolve.  To begin, trip drivers will shift, not only between departments, but also to services, driving a need to develop new types of cross promotions and basket-building appeals. Demands for advising category and aisle space will elevate, requiring more creativity and emphasis of engagement, giving shoppers additional reasons to choose the big box amidst a range of formats.

To discuss further, email me at Robin.Sherk@KantarRetail.com, or join us at our Year End Forum in Atlanta, GA on December 9th– 11th, 2014, where we will examine key landscape shifts across retail channels.

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