Monday, January 28, 2013

What Is the Right Size for a Store?

A local independent bookstore, Chester County Book Co., closed this weekend with a plan of reopening elsewhere later this year.

This is not just another story about a bookstore closing. It is also about a store seeking the right scale of operations. The store has been in business for 31 years, most of that in a shopping center. There, without moving from the space it was in, it expanded several times and contracted at least once. It added on a record store and a restaurant. In the end, it was all too much, and when the bookstore reopens, it will be at a much smaller location.

There is a trend toward larger, less crowded retail stores in suburban and city-edge settings, and not always for the right reasons. Part of it is that there is so much retail space available. It is a truism in retail space management that a shopping center should not be half empty, but with so much retail space and so few stores, it is not easy to keep a shopping center fully occupied. One of the strategies shopping center managers have employed is to encourage their existing tenants to expand into the vacant space around them. Sometimes this works, but sometimes, as the Chester County Book Co. story shows, you can lose a tenant this way.

Larger stores are, in theory at least, a good thing for shoppers. A larger store may allow for a more logical arrangement of merchandise and more space to move around, and this can save time. For the retailer, though, it costs more to operate a larger store, and especially these days, the increased rent may not be the largest expense. Energy costs for lighting and heating can be a larger expense. Depending on the store layout, a larger sales staff may be needed. This not only implies a larger payroll but perhaps also a less knowledgeable staff, on average.

In the end, store sizes will depend on how shoppers react. Recently I have seen a couple of stores expand and then close, which shows that a larger store space can sometimes actually hurt sales. In general shoppers spend more time in a larger store, but does this mean they will visit less often to save time? Retailers are taking chances with store sizes and it will not always work out well. My hope is that the trend toward larger stores does not lead investors to speculate in new retail buildings in already overbuilt areas. The trend toward larger stores could reverse, if there are more cases like the current one, and this could happen in less time than it takes to build a new shopping center.