The End of Big Box Retail?
With Best Buy and Office Depot (neither of which are considered stellar by Wall Street) both announcing plans to reduce the size of their stores by 10% in the future, I have to ask: Are we seeing the end of Big Box Retail?
Several trends are colliding to predict that big boxes (besides the Wal-Mart/Target food/mass merchandise combination) are passé:
- Online retail has claimed the “selection” niche.
In the past, the clear advantage to a big box specialty retailer (think Best Buy, Staples, PetSmart, JoAnn Fabrics) was that there was a wider selection than could be found in a traditional mass merchandiser like Kmart, Sears, Wal-Mart or in the mall-based, small specialty retailers. But brick and mortar can’t possibly compete with the endless virtual shelves of Amazon, New Egg, or Overstock.com. Without the selection advantage, Big Boxes have to reinvent why they should retain their customer’s loyalty. Each retailer has selected different approaches: Best Buy and Staples are attempting to highlight their installation and trouble shooting Services – which are difficult to replicate with an online store. PetSmart offers training classes and Pet Hotels. While JoAnn has classes nearly every day and even summer kids camps. They have to do something to fill up those stores – because their customers sure aren’t.
2. A post-recession big company backlash.
The market once served by Big Box retailers – think of families who fueled the mini-baby boom (echo boom) that peaked in 1990 – are not in the same psychological relationship with big business as they were when Reagan was alive. When millions of Americans received pink slips, they began to realize that faceless corporations did not hold themselves accountable for their devastating impact on local communities. Spending cuts that were originally made to meet strict household spending budgets hurt big box retailers more than other channels (dollar stores, luxury retailers.) American sentiment has turned against big companies as locally-owned retailers have banded into community activist networks promoting their dedication to local communities and jobs. For middle-aged workers stung by layoffs, making permanent changes to their spending patterns will play out for years to come. Meanwhile, the zeitgeist of the modern millennial is to hold all Big Box retailers in disdain. In short, the loyal big box customer is dying.
Having said all that, there is plenty of lifespan yet in the channel for smart companies who know HOW to compete. It cannot be Widest Selection. Or Price. (Both will be dominated by online.) And the very nature of Big Box retailing means it is unlikely to be Convenience. So there is Service or Experience. Big Boxes CAN offer unparalleled expertise and a laser focus on a targeted area that cannot be replicated by mass merchants or online. Unfortunately, they will need to dedicate far more resources to selecting, training and arming their store personnel with real-time technology than they do today. Experiences like indoor golf or tennis simulators, rock walls, shooting ranges and immersive try-before-you-buy environments are difficult to replicate, although most merchants have not figured out how to monetize those investments.
Long story short: I recommend against investing in REIT’s that are heavily into strip mall or power strip locations. I recommend against investing in big box retailers for the long term. I advise Big Box retailers to deliver local solutions in new concepts that leverage their national and international supply chains with savvy, well-trained store employees in small, targeted stores. Get closer to your customers than your current 50,00 square foot store allows.