It may seem like a paradox, but retailers like Macy's, Ikea, Nike, Target, Amazon, Nordstrom and more are all pursuing small store format strategies in hopes of getting closer to customers and reigniting market share growth. While this isn't fundamentally a new idea--and one could argue that for some it's coming at least a decade too late--this next generation of concepts is less about merely optimizing a store's size to make more locations work, but rooted in addressing the increasingly hybrid nature of retail's brave new world and the changing dimensions of convenience.
It may seem like a paradox, but retailers like Macy's, Ikea, Nike, Target, Amazon, Nordstrom and more are all pursuing small store format strategies in hopes of getting closer to customers and reigniting market share growth. While this isn't fundamentally a new idea--and one could argue that for some it's coming at least a decade too late--this next generation of concepts is less about merely optimizing a store's size to make more locations work, but rooted in addressing the increasingly hybrid nature of retail's brave new world and the changing dimensions of convenience.
We unpack what's driving these moves, why it's important and what to avoid as we're likely to see a doubling down on this strategy in the years ahead.
But first we open up the episode with our quick takes on recent retail news that caught our attention, including Whole Foods' killing free 2-hour delivery and replacing it with a $9.95 flat fee, earnings from Nike, Costco and Bed, Bath & Beyond (spoiler alert: yikes!), retail's IPO boomlet and Santa visits Target early this year. We wrap up with our popular "Press Releases That Must Have Gotten Lost in the Mail" segment, wherein HomeGoods discovers this e-commerce thing could be huge.
Steve Dennis is an advisor, keynote speaker and author on strategic growth and business innovation. You can learn more about Steve on his website. The expanded and revised edition of his bestselling book Remarkable Retail: How To Win & Keep Customers in the Age of Disruption is now available at Amazon or just about anywhere else books are sold. Steve regularly shares his insights in his role as a Forbes senior contributor and on Twitter and LinkedIn. You can also check out his speaker "sizzle" reel here.
Michael LeBlanc is the Founder & President of M.E. LeBlanc & Company Inc and a Senior Advisor to Retail Council of Canada as part of his advisory and consulting practice. He brings 25+ years of brand/retail/marketing & eCommerce leadership experience, and has been on the front lines of retail industry change for his entire career. Michael is the producer and host of a network of leading podcasts including Canada’s top retail industry podcast, The Voice of Retail, plus Global E-Commerce Tech Talks and The Food Professor with Dr. Sylvain Charlebois. You can learn more about Michael here or on LinkedIn.
Michael LeBlanc 00:04
Welcome to the Remarkable Retail podcast Season 3, Episode 10. I'm Michael LeBlanc.
Steve Dennis 00:10
And I'm Steve Dennis.
Michael LeBlanc 00:12
Well, Steve, once again, you and I get to chit and chat together, it's you and me, projecting from that great Canadian actor, Rick Moranis and his classic 'Honey, I Shrunk the Kids' to 'Steve, I think we've shrunk the store'. And that's what we’ll talk about a little bit later. But before we get into that, let's talk about the, the retail news,
Steve Dennis 00:31
Busy week.
Michael LeBlanc 00:32
Now, we never talked about these guys. So, I'm really thrilled to bring them back up, Amazon.
Steve Dennis 00:39
GO, I'm sure they're very neglected. I'm surprised we haven't gotten any nasty grams from the PR department.
Michael LeBlanc 00:45
Let's talk about Whole Foods. So, a couple things are happening at Whole Foods. First of all, on a business level, they've added back in a delivery fee. So, let's start there. So, tell me about that and this, you know, as I'm sure everyone knows, Amazon owns Whole Foods but let's start talking about this delivery fee thing.
Steve Dennis 01:04
Well, one of the big features of Prime has been that there is free two-hour delivery built in, or there was free two-hour delivery built in, but they announced this week that they are going to eliminate that. And there is now a $9.95 cent charge for two-hour delivery, still free one hour delivery for Prime members if you want to go pick it up but this is a pretty big change. They were testing it in five or six markets for a while. But yeah, they just announced that that's going to go everywhere, which has gotten number one a lot of pushback online from customers complaining about it feeling like they, kind of, changed the deal in terms of Prime membership, which is a paid membership. But, of course, nobody likes price increases. But to me what's interesting about this and I kind of think the folks in Bentonville and Minneapolis and, and other places were breathing a sigh of relief because as we've touched on a bunch of times, the cost of grocery delivery is generally pretty prohibitive for the retailers. So, to the extent this either allows more people or more retailers to charge, get some of that money back or encourages more customers to come to the store which I suspect will be the bigger effect, you know, that's, that's a much better financial outcome for, for retailers.
Michael LeBlanc 02:26
It's been an interesting journey, right, with Amazon buying Whole Foods and if you cast our minds back a couple of years ago, the announcement was made, it was, oh my god, it's the end of grocery, end of grocery. I think it took like a billion dollars out of the market. Which fantastical just ridiculous because you know at the end of the day, it's a 400-store chain, 450 stores, about 14 in Canada, I think,
Steve Dennis 02:48
Yeah.
Michael LeBlanc 02:48
close to 400 in the US. It's positioned at a certain price point, I thought when Amazon bought it I was going the other way I thought they were catching a falling knife basically, I mean Whole Foods was not doing spectacularly well.
Steve Dennis 03:02
Yeah.
Michael LeBlanc 03:02
And I didn't really see the fit. I didn't see the fit culturally, I didn't see why they needed to. I mean, there's other groceries you can buy, they paid what, $14 billion for them and Amazon can pay any amount of money, they could about anybody practically.
Steve Dennis 03:13
Yeah, I mean, in the scheme of things, it's a relatively inexpensive experiment. You can argue. You know, a lot of people have had thoughts on whether this was really the, the way for them to learn about the grocery business that they had designs on, on a bigger plan which they seem to be executing out from mainstream grocery, because you're entirely right, Whole Foods in the scheme of things is very much a niche player. That's not where the big money is, it's going to be much more
Michael LeBlanc 03:36
Yeah.
Steve Dennis 03:36
Where they're going with Amazon Fresh, but the other thought was okay, well, it's a more upscale consumer. And if they get more data about the upscale consumer, perhaps that helps them in the fashion business and some other aspects of their growth plans.
Michael LeBlanc 03:49
Yeah, yeah.
Steve Dennis 03:49
I don't think that's paid off so much, but maybe the grocery part has, has been good R&D for them.
Michael LeBlanc 03:56
All right. Well, let's, enough about Amazon. Let's talk about earnings, another batch of earnings and some information on Warby Parker. What have you, what have you, distilled from this week's earnings calls?
Steve Dennis 04:09
Well, a lot of just general retail market activities. So, the three earnings announcements I thought were the most interesting. One: well, let's start with the good news. The good news, for the most part, was Costco, which had, I want to say, about a 10 or 11% sales increase, and an even better earnings increase. So, those were pretty strong numbers, even though they alluded to concerns about inflation, supply chain and all that, kind of, stuff. So, they managed some pretty good numbers despite some of those headwinds. And also, I would have thought, you know, this has come up several times, where, with COVID, being a little bit less of an issue that grocery isn't having the, kind of, banner year as people go back to eat out more and, you know, Costco is not a traditional grocer, they've got a mix of other, other stuff, I think Wall Street was expecting that their sales might, might be tamped down a little bit, and they weren't. So, that was pretty impressive.
Steve Dennis 05:10
On the flip side, well, let's say the moderate side, Nike's earnings were actually pretty good. I mean, their sales, they did solid sales growth, most people would be happy with the kind of, sales growth and it's like 19%, or something in the US, 11% in China, which was a little bit low for them. Their margins are actually pretty good, but people got pretty concerned as I talked about all the supply chain challenges they're having and they basically guided much lower for the balance of the year, and I think, you know, into next year and I think we talked about this, maybe a few weeks ago, about how much product, Nike, but others are having made overseas and in Vietnam, in particular and Vietnam, just you know, nothing's coming out of there and doesn't look like much it's going to come out of their for quite some time. So, that, that was a big damper on Nike
Michael LeBlanc 05:59
Talk about Bed, Bath & Beyond's number.
Steve Dennis 06:03
Yeah, well, the, the train wreck, I guess you could say, which is probably charitable in the earnings announcements, Bed, Bath & Beyond, folks may know, certainly was struggling for quite a long time, but they brought in a whole new leadership team, Mark Tritton from Target, most notably, but a whole bunch of other senior executives and they've been implementing not only, extensive private brand programs, remodeling stores, bringing in new brands, and so, they actually were posting some pretty good numbers, seem to have some pretty good momentum. And, then they announced this quarter where sales retreated significantly. And they talked about how traffic, I think, I don't have the number in front of me, but the traffic to their stores in August was down 20 something percent.
Michael LeBlanc 06:47
Wow. Wow.
Steve Dennis 06:48
You know, on the one hand, you could say, well, yeah, COVID, and certain areas have, kind of, come, come back, but that seemed to be really out of whack with what a bunch of other people are reporting. They also like everybody are talking about supply chain, cost of goods, inflation, those sorts of things and so, both the warning aspect that we saw in a lot of retailers but, but in particular, the traffic declines caused people to run to the exit, I think the stock was down 20, 25%, the day of their earnings announcement. So, that's, that's a little bit mysterious, not good news. The other kind of market news is what I would put under the kind of IPO boom, heading, which is a number of retailers, some of which we talked about in the past, like Albers and Warby Parker, going public, but we've got Guitar Center, Claire's, Mattress Firm. So, you got these, kind of, hot, sexy brands like Allbirds and Warby Parker going public, and then you got these other three brands, which are, were bankrupt in the last year or so, also going public. So, we'll see, we'll see how that sorts out, but the one that did actually go public this week was Warby Parker, which we talked about with Dan McCarthy, a couple episodes, I guess, at this point, and they went public, stock rose a lot. I believe they close as we're recording this
Michael LeBlanc 08:04
I saw 50 percent, I thought
Steve Dennis 08:07
It spiked a lot and, you know, where it's sorted out. I haven't looked at the market today. We're recording this on Friday, but their valuation at the close of their first day of trading was about $6 billion. Fun fact, same day, I think, Bed, Bath & Beyond with their announcement, their market value is $2 billion. So, here you've got this, you know, really well-known retailer with eight, nine hundred stores I guess, multi-billion dollar business with a $2 billion valuation and then Warby Parker, which loses money, and you know, maybe does $600 million in the year ahead. $6 billion evaluation, so.
Michael LeBlanc 08:43
All right, let's move on. Let's talk about, let's talk about Target. So, they're making an announcement around a holiday. Tell me about what you, what you perceive of their latest announcement.
Steve Dennis 08:54
Well, pretty much they're kicking off the holiday season, October 10, which is a little early, because people would, would say, you know, on the one hand, as probably everybody knows by now that you've been in retail for a while, the holiday season, the Christmas season just seems to keep creeping earlier and earlier and earlier. So, to a certain degree. Not that surprising, but, but I guess they're, kind of, officially kicking it off with their holiday deals. But I think a lot of this, aside from just, kind of, cutting the line and trying to get out there before Amazon, or Walmart, and everybody steals their thunder, is a lot of the supply chain issues. I think that that’s the story about products being in short supply. I think it's transcended from just being industry insider, kind of, stuff to a consumer story. So, I think this is, this is largely in response to what consumers are likely to be doing. So, I suspect we'll see every other retailer on the planet probably do some version of a competitive response, you know, exactly what that looks like, but yeah, I think Christ-, Christmas is gonna come early, whether it turns out to be a lump of coal or not.
Michael LeBlanc 10:07
Yeah.
Steve Dennis 10:08
We'll see.
Michael LeBlanc 10:09
So, there's been, this big company, that when everybody says, I was on a panel this morning, you know, ecommerce, you're gonna, you'll die without it, you got to be omni, everybody goes, but wait, there's one, very successful retailer that has no ecommerce that might be coming to an end, talk about that.
Steve Dennis 10:28
Well, really, kind of, the whole category of off-price retail, which I'm sure most people know, the off-price category, you know, TJ Maxx, Ross stores, Burlington, a bunch of others has been one of the fastest growing categories for a decade plus, most of these retailers have opened, you know, hundreds, if not thousands, of stores and has seen great, good growth, but virtually no ecommerce. In fact, I think it was Burlington, they had ecommerce and then closed down, in COVID, which was seemingly counterintuitive, but Home Goods, which is the home furnishings off-price division of TJX, they announced this past week that they are going back into ecommerce. So, that was a little bit of a counter narrative.
Steve Dennis 11:14
I always, I guess two things I'll comment on, one is, I always thought it was a little bit funny, and it gets to, kind of, this whole siloed thing of thinking about ecommerce having to be a transaction channel. As opposed to, yes, being a transaction channel, but also being an enabler of store sales, and particularly with buy-online, pick up in-store. You know, there is this intersection between physical and digital, that's important.
Michael LeBlanc 11:38
Yeah, yeah.
Steve Dennis 11:39
Also, maybe, you want to go see whether there's inventory in the store, before you go down there. And so, to me, it wasn't so much about ecommerce as a transaction channel. It was really digitally enabling across. across channels, but the pushback from the off-price retailers, which I will say, in my experience is mostly BS, is that well, we don't know what we're going to have. So, how can we possibly put it on a website and, you know, they like to create this illusion that everything is like, you know, fell off the back of a truck and that's why it's such a great deal. But, you know, so much of the product for these stores is made for that. So, they absolutely know what they have. And yes, there was a portion that's that's more treasure hunt-y, but you know, so I think there has been a little bit of a smoke and mirrors game, but a big part of it, get me to my second point is, concerns about profitability because the price points are fairly low, and as you talk about, returns are quite high. So, there is a real concern about how to profitably do ecommerce in the off-price channel.
Michael LeBlanc 12:39
Well, all right, that was our news of the week. Now, before we get to our, you and me, just chit and chatting, I want to remind the listeners or conversely the viewers. Well, if you're viewing this, you already know, we have a YouTube channel and its bonus, it's bonus content, because you and I chit chat for actually closer to 20 minutes, half an hour, but we, kind of, for time, we, kind of, trim that down to about 10 minutes. But if you want to hear our full discussion, we get into some fun stuff back and forth, visit our YouTube site, and just look for Remarkable Retail and we'll be there. But for now, let's get into this 'Honey, I Shrunk the Store' discussion. So, let's, let's kick it off.
Michael LeBlanc 13:18
Well, see we're back on the mic talking about stores and in this instance, in this episode, you and I wanted to talk about small stores. Let's start at the beginning. Why, why would we talk about it, why would we have an episode around small store strategy, what, what's on your mind?
Steve Dennis 13:35
Well, the primary reason I think is, we've seen a pretty significant uptick in retailers either opening or announcing. They're going to open smaller store formats. So, when we think about some of the large legacy retailers, we've got Macy's with their market by Macy's concept, they just opened Bloomie's, Express is going to do a store called Edit, Targets been, I think they've got 50 or so, smaller stores, either their urban city store or these campus, the university campus stores, IKEA, Amazon. So, there's just a lot more activity on the part of legacy retailers with these smaller store formats in the last really six months or so. And, then even though it's, kind of, a different thing, a lot of the digitally native vertical brands as we've, we've touched on are accelerating their store strategies and going about it in a different way, largely showrooms, so, they're pretty small format stores. I think it's a little different, different thing, but yeah, it seems there seems to be a real uptick, and actually, I expect we're going to see even more of this as we move ahead.
Michael LeBlanc 14:40
Let's talk about, is this something that was brought on by the COVID era, by the development of changes in retail, is this, is this all that new, that, that retailers would examine different formats and different sizes?
Steve Dennis 14:52
I don't think fundamentally I think there's some different things going on here but I was thinking about this, prior to getting on the mic here, I've worked on a quite a few small store formats over the years way back in the, in the '90s when I was at Sears, Sears was experimenting with quite a lot of, I guess, you'd say, kind of, category specific store so instead of building a mall taking one of the categories they're known for like hardware mattresses appliances, and opening these more focused stores which, I think, is fundamentally about leveraging a strength getting closer to the customer maybe attracting a slightly different customer with a different location.
Steve Dennis 15:35
I also worked on two things at Neiman Marcus, more recently, one was a concept we called CUSP which is a specialty store, really focused more on, kind of, the modern luxury customer and the thrust there was, you know, we could open a lot more of these locations in theory, than the big full line Neiman Marcus stores and easier to find locations, you don't have to be part of a big mall but the idea was, really, go after a slightly different customer, younger, lower, lower price points. Barney's did that with their Co-op stores as well, so, I think certainly, you've got one thrust, which is, let's reach lower demi-, you know lower, let's go after different customers with say lower prices so, that's very much behind outlet and factory stores so those stores are generally much smaller than, kind of, the mothership,
Michael LeBlanc 16:31
Yeah.
Steve Dennis 16:31
these category stores like I mentioned as well as Amazon bookstore, Amazon Four, Four Star.
Michael LeBlanc 03:36
Yeah.
Steve Dennis 16:38
There's definitely a slightly different angle which has been around for a while, which is to right-size your store, to make really expensive real estate work. So, most often we see that in,
Michael LeBlanc 16:50
Right.
Steve Dennis 16:50
in urban centers so, Walmart's got these neighborhood stores not a lot of them, cities got, or Target's got their city concepts and then the other one which I also actually tried to clean up a bunch of years ago is the idea that you right size a store for smaller markets, so, secondary cities lower markets, say Kohl's, BestBuy, and many others have been doing that for a while, Sears was on this, also did this for quite a number of years. So, there's, you know, there's different motivations and like we said, you have the digitally native, vertical brands are going after stores, as really in addition to just being online only, to reach more customers lower cost of customer acquisition, you know, those sorts of things. So, I think we have to really think about what you're trying to do
Michael LeBlanc 17:37
Yeah.
Steve Dennis 17:38
But the new thrust, I think, is a little bit different which, maybe, we can, kind of, unpack a little bit, what's, what seems to be driving it today versus what we've seen over you know, 15, 20, 25 years.
Michael LeBlanc 17:48
Yeah, I can think of a couple things that would drive it differently but just to hang on your ideas about these different, there's different pros and cons to each, right, we should probably unpack those for a minute or two, I mean, taking a store and shrinking it and trying to keep, you know, particularly is a big store with a broad assortment with lots of different categories, that feels to me they like you wind up good at everything but not great at anything because you've, you've got a smaller assortment, maybe it's not what people are looking for. I mean, there's some grocers here in Canada that have, you know, neighborhood stores, so, they take their huge box store and put it in a small store neighborhood, and you know, it's great real estate strategy, but it suffers from assortment, right, there's not the assortment people were expecting, and so, in one case Sobeys actually just changed the brand they bought a brand called farm boy and it just suited a smaller urban market, so, they just, kind of, start converting them all to that. So, that brings up, the other issue is, is you're starting to meddle with the brand a little bit, what people expect, I see it you know back in our history, your history, you know, open up, you know, if your Sears, you open up a tool destination or a big ticket destination, but what are the, what are the pitfalls is that is that when, when you would go through, or you would today and start to advise people about what to think about?
Steve Dennis 19:04
I certainly think when you have a well-known brand, and there's an expectation of what that brand stands for and then you open, essentially, a watered down version of that brand that can be pretty tricky. Way back when like I said I worked on the, on trying to clean up the Sears smaller stores and, the, the issue there for sure, well it was one of two things. When we first opened them, which was way before my time, back like in the '70s and '80s. They were fairly competitive, and they were bringing something new to some of these secondary, or tertiary markets, but as soon as Walmart came along, or Target came along or whatever, suddenly they were just not competitive. So, there were a set of stores that just weren't competitive.
Steve Dennis 19:49
Then there's this other issue and I'll just use it as an example. Some folks may remember that Saks, probably 20, 25 years ago, were opening these main street stores and they were quite a bit smaller than the typical Saks store. But they were also going into, kind of, secondary cities like Charleston, and suburbs in New York, and things like that. And that was a big disappointment, because it was really just a little bit of everything. And so I think you have to be very careful. Now, just use the sacks example, again, I think if you've got a powerful reputation in a particular category, and there really isn't a competing Saks store, that's not too far away, or there isn't really a great set of competitors, that maybe can work a little bit better. But, like, when we did, when we open the customer stores at Neiman's, we were very careful, first of all, to give them a different brand name and really, kind of, say, you know, "Brought to you by Neiman Marcus", as opposed to leading with it.
Michael LeBlanc 20:44
Yeah, yeah.
Steve Dennis 20:45
And it was very clear, because these stores were 7, 8 thousand square feet, not 150 thousand square feet, and located in some different areas that it was not at all a Neiman Marcus store. Now, for various reasons that strategy didn't go forward in the contemporary, CUSP is, basically, now the contemporary department in a Neiman Marcus store, but I think, yeah, it's very important to both, understand the expectation about the brand, and either not watered down or go about it in a different way, but also just be really mindful of what the competitive set is. So, in that example, we're talking about that. I suspect the reason why the, the city Targets work is because there's strong affinity towards Target in general. And, where they tend to put these, there aren't good alternatives. I guess, it's just too hard, you know, there's no huge Walmart, you know, down the street, or you're taking public transportation and so just the hassle of getting there, so that's a really different thing than somebody just, you know, jumping on the highway, and, and driving 10 minutes to get to, you know, the real, the real Target, or the real Walmart, or the real Nordstrom.
Michael LeBlanc 22:02
Yeah, yeah. Let's bridge over to current events. So, as I think about what we're talking about smaller stores, I think about two things. One, is the work from home readjustment in the workplace. So, that may be, you know, that may be smaller than it is today, may be bigger than it is today, but there's no question, when I talk to retailers, they tell me their downtown stores are, are struggling a bit, their urban stores are growing, maybe, you know, they were planning to put more stores in urban markets. So, maybe that's a real estate play and the second thing, of course, is ecommerce. So, when you say, you know, you didn't have the target assortment, and in the little Target, in the smaller Target stores, or you, you have it online, how do these two things in your mind play together in the current environment?
Steve Dennis 22:49
it's one thing to, I guess the way I think about it is it's one thing to optimize, so to speak your store for a new situation. So generally, it is true that by virtue of ecommerce, your stores don't necessarily have to be as big, and you can still meet the customer's price, particularly, if the things you're taking out are more commodity-like. So, I think you really have to understand the customer, why they're coming to your store, is it an add on item, is it you know, something that they really want to see, touch and feel, maybe get sales help. So, I certainly think with some formats, you can have a smaller store, but it's really more optimization as opposed to really thinking about your go to market strategy in a fundamentally different way.
Steve Dennis 23:40
So, that's why I think when we talk about what, what Target is doing, or, or some of these large retailers with their newer stores, it's still basically their full version store. They're just tweaking it for, kind of, this, this new environment. It's a different thing. You mentioned Nordstrom Local, it's a different thing to really say, okay, we want to build a really different format to serve a really different role. And so, Nordstrom Local, which I know we've talked about a few times on the podcast, is only a couple 1000 square feet. And, there is no merchandise offering for tech with business. So, it's really obvious it's not anything like a Nordstrom department store, but what they're doing is, kind of, surrounding the Nordstrom full line stores to make these stores more of a service concept. So, buy online, pick up in-store, buy online, return to store.
Michael LeBlanc 24:34
Returns, and all that,
Steve Dennis 24:35
returns, yeah.
Michael LeBlanc 24:36
Alterations. Yeah.
Steve Dennis 24:37
Right. And so, you know, that is extending their reach, and doing so in a much more capital efficient way
Michael LeBlanc 24:46
And, brand consistent, because you're getting the best of both worlds. You're not setting expectations that this is a Nordstrom, in what you're traditionally thinking about it, right?
Steve Dennis 24:55
At the risk of stating the obvious. I think that we, you know, part of the way you get to this, because I've been asked this question a bunch of times, and it's hard to say, you know, there's just one rule of thumb for all of retail because there really isn't. But start with the consumer, you know, are you really solving a problem for consumers, I think, in the case of Nordstrom Local, it's a hassle for many people, if what they want to do is pick up an order, or exchange something or just get some alterations done for something they ordered online. In many cases, it's a real hassle to have to go to the full line Nordstrom store, because it's not close to their home or office. In many cases, you know, you’ve got to deal with the parking deck, go up the escalator, the whole bit. So, here, they're really leveraging strengths they have, but going after a few specific issues, if you want to go see the whole assortment, presumably, it's worth driving an extra 15 or 20 minutes or planning for it as opposed to running into a Nordstrom Local after work or what have you.
Steve Dennis 25:50
So, I think you're really, you know, a lot of cases of the retailers are really just, kind of, optimizing a store to get the return on assets to be better. Well, what are you taking out, and does the thing you're taking out really undermine why customers go to you in the first place? And so, I think that's why we've seen some of these strategies fail. So. you have to start with the consumer, you always obviously have to pay attention to the economics and the tradeoffs, and, and so forth, but I think it's, I think we're going to see more of these, kind of, not necessarily singular purpose stores, but kind of, more service oriented stores.
Steve Dennis 26:27
The other thing I think, is really specific to, well, not unique to just department stores, but I think is a real challenge to department stores. And I know we touched on this in a recent episode a bit, is, if you're a large department store, with this vast offering, and you're continuing to close stores, you are making yourself less convenient to the customer who wants to go into your store, whether that's to see the merchandise, get sales help or do a return. So, I think the challenge, so, so just, for completion here, just reminds people, so, Macy's is pursuing a few small store strategies. One is their outlet store strategy, which, you know, we've already kind of talked about the reason for that. I think that strategy is probably 20 years too late, but, you know, it's not inherently a flawed idea.
Steve Dennis 27:20
Then they're trying these two other, kind of, specialty store concepts, one called market by Macy's, and one, which is, Bloomie's, which is a small store version of Bloomingdale's, which is part of Macy's, and here, these stores are much smaller, like 20, 22 thousand square feet, and they're edited, curated, as I guess, as we like to say, but still a little bit of everything for everybody and they've added some features, and are more modern, and some cool technology and everything, but that, you know, on the one hand, gets Macy's closer to the customer, particularly, where they went may have exited markets.
But I think the question will be, how, how do they really develop that business, who are they stealing market share for, from. Does the customer really need it, and I don't know the answer to that question? I do get a little bit worried that they may be really just, kind of, a watered down version of Macy's and people may end up, like in the case of Bloomingdale's or Bloomie's, that store outside of DC is like 10 minutes on the expressway, on the highway, up to the Bloomingdale's store and so, you know, that's, that's a really interesting trade off, so, that just opened we'll see how that works but, but that's a little bit different, different challenge I think to make those, those concepts work because it could come across, really, as just a watered down version or not competitive with a set of retailers that are in the immediate trade area that they happen to steal business from.
Michael LeBlanc 28:54
Well, I like how you always bring this back to those two elements, many elements but the whole what's in it for the customer, first of all, and then second where's the sales coming from, like, who are you taking share from. Now, we're in a weird time, when there's retail growth everywhere, it seems, you know, according to Rod from our last episode, there's lots of growth to be had and less products to be had, but that won't last forever. So, it's who are you grabbing that market share from.
Steve Dennis 29:20
I think you want to be able to not only have an offering that's of interest to the customer competitively differentiated, all the stuff we just talked about, but realize that the role of your store and in many cases has a much more important service function going forward. And also, you know, this, this marketing, well, we've talked about that a few times.
Michael LeBlanc 29:41
Yeah, yeah, yeah.
Steve Dennis 29:41
I think if you're Nordstrom or Macy's, whatever having, you know, it's a billboard, right.
Michael LeBlanc 29:46
Yeah.
Steve Dennis 29:47
If you're just driving by, so that, again, that's, I think, a particularly vexing issue for the department stores that are retrenching, you know, like here in Dallas, and I think, you know, separate episode, probably on JC Penney, but Dallas is where the headquarters is, and they closed I don't know, six or seven stores in the last couple of years. And so and there, and there are quite a few more, you know, competing stores, whether you think about it as, as Macy's, or, or Target, or Kohl's, or, or what have you. And so, they've made their brand less convenient for customers to go into and shop, but they also have reduced their marketing impression. And so, as customers are driving around, or going to a mall or going to a particular shopping center, they're seeing TJ Maxx a lot, and they're seeing Ulta a lot, and you know, all these others.
Michael LeBlanc 30:40
You're just not being thought of, right, yeah, you're just,
Steve Dennis 30:41
Yeah.
Michael LeBlanc 30:42
Now, you may, maybe, maybe you don't dislike JCPenney, or whatever, you don't think ill of them, you just don't think of them at all. And that's part of that problem, right? If they, I guess, if you close stores and that strategy, you better gear up your other marketing, maybe put flyers on people's doors, because, you know, people, people forget about your brand real quick.
Steve Dennis 30:59
It also I think causes retailers, and I think this is the longer-term issue and why I fundamentally think we'll see more of these is, and we touched on this in the hybridization episode a month or so ago, but, like, for example, if you look at what Nike is doing, Nike is developing a bunch of different formats for a given market. So, they can have potentially these and probably only in major, major cities, that house of innovation, which is like that best of the best real draw of the store, you know,
Michael LeBlanc 31:30
Yeah. Experience store, as we go.
Steve Dennis 31:30
Yeah, and large and very large.
Michael LeBlanc 31:34
Yeah.
Steve Dennis 31:34
Then they have more of the Nike format, we've seen for a while, which is, which, you know, is a good feature, but not quite so elaborate in malls, but now they've got Nike Live, which is a smaller store, more local, more, kind of, a membership model, they've got Nike Rise, which is kind of in between the house of innovation, and so, and you know, for all I know, they, they may have pickup only stores, right,
Michael LeBlanc 03:36
Yeah.
Steve Dennis 31:59
if you want to get, order something on Nike on nike.com and want to get it close to your office. Maybe, they got pickup lockers, or something like that. So, I think you have to step back and say, well, what are all the things we're trying to do to grow share of wallet with our customers, extend our reach, deal with convenience, which in some cases is, yeah, dot com, that's the way to make it convenient. You know, partner with.
Michael LeBlanc 32:20
And deal with unit economics as, as I.
Steve Dennis 32:22
Right, right.
Michael LeBlanc 32:22
As we both observed from our last episode with Rod Sides, such a funny way he put it, but it was very clever, you know, the consumer is part of the supply chain. They're the last mile they come and pick it up. And that changes unit economics fundamentally.
Steve Dennis 32:35
Yeah. And what's, what's interesting to me, and unfortunately, I think it tends to favor the, the newer, you know, the kind of, disruptor brands is, you know, so whether we're talking about digitally native vertical brands, or, you know, maybe these delivery models, or what have you
Michael LeBlanc 32:52
The Indochinos of the world or whatever, yeah?
Steve Dennis 32:53
Well, they're, they're leveraging, in many cases, a low cost of capital and they're getting to, when they expand, they get to open the latest and greatest thinking, and with all this knowledge about where retail is moving. So, to your earlier point, if we are going to lose some business in the urban cores, and go more say to suburbia are different types of centers, the guys that are able to open a lot of new stores, well, they get to put that format there. And, then you've got the Macy's of the world, they're like, oh, crap, you know, we got 600, or whatever they have now, these huge stores. And, yeah, if we had to do it all over again, we probably put, you know, this, this new thing across the street, but because that where, that's, kind of, where it wants to be, but, you know, ah, we already got this big investment.
Steve Dennis 33:45
So, I think it's harder, not impossible for some of the legacy players to move. But someone like Nike, or Nordstrom, I think, among the established players, they're a little bit better positioned, because they're not so trapped in all this old massive real estate, that, you know, it's, kind of, fully depreciated, so, so anyway, so
Michael LeBlanc 34:15
Yeah, yeah, yeah, yeah.
Steve Dennis 34:15
I think that's, I think that's the challenge, kind of, the innovator's dilemma, if people are familiar with Clayton Christensen's book, that, that some of these insurgents have the advantage, you know, a bunch of advantages. Some of them are cultural, as well, new technology, blah, blah, blah, you know, all the things that make innovation hard. So, so we'll see. I mean, I think, but like I said, I think there's going to be this, this desire to really develop a more hybrid strategy on the part of different physical formats, but certainly linking them are very much recognizing the degree, you know, what ecommerce does to the economics.
Michael LeBlanc 34:48
Yeah.
Steve Dennis 34:48
You know, the different ways of doing fulfillment, whether you go to store, have at home delivered, etc. So, it was a really, really interesting time, and certainly, we've got to get post COVID to understand, exactly, how this is going to sort out, and as we talked about at the outset some of these, or many of these new small formats are, have just opened or you know there's like two of them so, it's pretty hard to extrapolate to, are we're going to see hundreds of these or or maybe none or a few dozen.
Michael LeBlanc 35:18
Yeah, I was I was gonna say let's go to Vegas and make a bet on the if we're going to, if how much and how deep the strategy goes but I'm actually very optimistic about the future of retail innovation from a store perspective because I think in the past 18 months, generally retailers have been just trying to get through whatever comes at them next, but then thinking in the background about, okay, now what, and I think we're gonna see this flourish of innovation whether it's small stores, whatever it is, but, specifically around small stores you've had acceleration of ecommerce moderation, people are picking things up, unit economics.
Michael LeBlanc 35:55
You know, there's so much going on I'm pretty excited actually about, about the future and about, you know, once we get past all this, which, as I've always seen, you can see the end zone, the goalposts keep moving a little bit, but I think the, I think the real estate, the real estate and store innovation is yet to come. And we're gonna have a very exciting couple of years, so, it's a great topic for our discussion today. And so, as the radio folks or TV folks would say, why don't we leave it there, and we'll pick it up on another episode, we got a lot of great guests coming up, but for now let's, let's wrap up and see everyone next week.
Michael LeBlanc 36:30
And, if you like what you heard, please follow us on Apple, Spotify, Amazon Music, or your favorite podcast platforms, so you can catch up with all our great interviews subscribe, so that just automatically shows up, and tell your friends and, and also in new insights and new episodes will show up every week. So, tell your friends and because that will help us share the word, the good, the, the good wisdom. Now, be sure and check out, and be sure and check us out on our new YouTube channel. Not so new anymore, got a couple episodes up there and just look for Remarkable Retail.
Steve Dennis 37:01
And I'm Steve Dennis, you can check out more of my work at my website, stephenpdennis.com, or on Forbes, or on Twitter and please check out my second edition of my book, Remarkable Retail: How to Win and Keep Customers in the Age of Disruption. Available just about everywhere books are sold.
Michael LeBlanc 37:21
And I'm Michael LeBlanc, producer and host of The Voice of Retail podcast and a bunch of other stuff. You can find me on LinkedIn, learn about me on meleblanc.co. All right, Steve, great episode. Look forward to chatting again next week. Be safe and have a great rest of your day.
SUMMARY KEYWORDS
stores, customer, ecommerce, retailers, nordstrom, brand, people, retail, bit, big, thought, smaller, amazon, macy, formats, strategy, close, nike, business, talk