A new urgency for smaller stores

November 03, 2011

The vast urban shift should have retailers compacting their formats and learning the mindset of city consumers.

America’s urban boom should have U.S. retailers mapping their strategies for smaller stores and snapping up sites. If not, says The Lempert Report, operators will abdicate growth to their competitors.

We believe that Walgreens had Census Bureau documentation of population shifts very much in mind when it acquired Duane Reade, and since then when it broadened its consumables strategies and marketing. Walgreens has long been savvy in real estate, and now it is one of the loudest food voices in New York City.

Gone is the model when a 50,000-square-foot Pathmark would attempt to serve an inner-city market. Stores like this are too big, too costly and too clunky to operate in urban space. Nimble is best today. Think Walmart Express, Tesco, or multiple-story Trader Joe’s, Whole Foods or Harris Teeter stores, as examples of formats that could nestle into many neighborhoods.

This urban shift isn’t a product of the recession, house foreclosures and other bad economic news, even though these added to the armies of urban renters. The shift looks generational to us because Millennials prefer to be near their work and social circles, avoid wasteful commuting, and set a different path from what their parents provided. Cities are more exciting than the suburbs.

So, we suggest, stores that plot smaller formats to serve urban consumers also assort to the nutritional and convenience needs of these consumers, as well as their preferred brands and package forms and lifestyles. By being responsible community members, stores stay socially and culturally relevant, on consumers’ good side, and in a better position against alternatives a block or so away. Earning their confidence will be key; this won’t be simply a numbers game.