Retailers Breaking Out Departments Into Standalone Stores

The average store footprint in developed countries is shrinking.  It is a trend resulting from retailers’ desire to bring stores closer to the aging shopper and to increasingly dense urban areas.  This shift was apparent in 2011 with the unveiling of Walmart’s two small format stores, the announcement that the average Best Buy store will shrink by 15-20%, and the announcement that Staples would be reducing its footprint by 10-15%, just to name a few examples.  However, it is interesting to see that retailers are going beyond simply shrinking their supercenters’ store sizes.  Many retailers, like Walmart, Sainsbury’s, Marks & Spencers’, and Loblaws for example, are transforming in-store departments into standalone specialty outlets.

The goal is to penetrate under-served markets, broaden corporate reach, compete more directly with specialists, and to bring consistency and expertise to consumers through smaller formats that can use values associated with the large brand name to compete with mom & pop stores.

It is only fair that I start with the biggest player in the industry, Walmart.  Walmart opened its first standalone pharmacy in Mexico City in 2011.  The store, branded Medimart Farmacia, includes Baby, Optical, Vitamins & Supplements, some dry grocery, an Orthopedics departments, and a number of services including medical and optical consultations

Medimart Farmacia by Walmart

Walmart’s Supercenters are known for providing pharmacy and healthcare products at a great price,  so in an attempt to both broaden its reach and bring added convenience to new shopper groups, Walmart created this standalone pharmacy banner.  The 3,000 square foot store is Walmart’s first pharmacy-only store, but Walmart believes that it can leverage its brand name in an attempt to both drive sales and traffic from the small format.  If Walmart can provide the same Every Day Low Prices (EDLP) on its pharmacy and healthcare products as it does with the rest of its products in its supercenters, retailers like CVS, Walgreens, and Boots will need to think twice about their current strategies.

Loblaw, which is known for its Canadian supermarkets, featured its highly popular apparel line as a department within its stores for 3 years before realizing that it could increase its reach if it broke the brand out into standalone stores.  The Joe Fresh brand was first launched in 2006, and just recently it crossed the $1bn Canadian threshold.   Today you can find 7 Joe Fresh standalone stores in Canada, and as of November 3, 2011, shoppers can find Joe Fresh stores all around the New York metro area.

Joe Fresh by Loblaws

The apparel line had begun to gain immense popularity among Canadians, so the decision to break the stores out into specialty apparel locations should come as no shock to anyone.  The 15,000 square foot stores make it much easier for Loblaws to reach their target demographic in areas like downtown Manhattan, where traveling outside the city to shop is unheard of.

In the UK, two big box retailers have broken out their ready-to-eat and prepared foods departments.  Marks & Spencer and Sainsbury’s opened standalone bakeries to reach busy commuters near metro stations and on streets with high traffic.

Marks & Spencer & Sainbury's 600 Square Foot Bakeries

Marks & Spencer unveiled the Food-on-the-Move banner just months after Sainsbury’s opened its first Fresh Kitchen store.  The two deli/bakery stores are simply an extension of the operations that were conducted strictly in-store previously.  The two bakery banners, at around 600 square feet, are a much more enticing lunch destination for consumers than a 40-50,000 square foot supermarket.  Not to mention the fact that it is very difficult to put a full-size supermarket in the heart of the city.  The small footprint offers retailers the ability to place these stores anywhere in the London area, which in turn increases trip capture through increased accessibility.   Most importantly, however, the decision to create these standalone stores though was the fact that the retailers already had the buying & operations practices in place in their supermarkets.

Best Buy opened its first standalone Best Buy Mobile store in 2007, when they opened a total of 9 stores.  Today there are about 325 Best Buy Mobile stores in the US, and 13 in Canada.

Best Buy Mobile

Best Buy had originally partnered with the UK retailer Carphone Warehouse in establishing these Best Buy Mobile stores.  However, seeing the initial success of the concept in the US and Canada brought Best Buy to buy out the UK retailer.  Best Buy had sold mobile phones in its stores for years prior to the unveiling of the newer Best Buy Mobile stores.  However, Best Buy’s unveiling of the mobile specialty banner, and the contract wars with the wireless service providers between devices, resulted in a major shift in the industry.  Shoppers can now go to a Best Buy Mobile store, choose the phone they want, then choose their plan.  The service providers no longer dictate what phones you are able to buy.  Rather, the phone may dictate whether you have a Verizon, AT&T, Telstra, or Telcom service plan.

More importantly however, these Best Buy Mobile stores are a way for the electronics specialist to create an additional growth driver.  The brand extension tactic is a way to bring the brand name, and the trust and expertise associated with it, to more locations with a lower building cost.

So What?

The fact that retailers are opening specialist banners is detrimental to small businesses.  The fact that they are able to leverage their size and their brand name will be make it incredibly difficult for mom and pop stores to compete in the same markets at the same prices.  For example, if the Every Day Low Prices of a Walmart appeared in pharmacy form in your town, would you not go there to save money?

Also, these smaller formats help the traditional big box retailers establish themselves as more of a specialist in the eyes of the consumer.  With a standalone store, consumers are more confident that the retailer has a full selection of products in the category and that store personnel are more knowledgeable about the offered items.  The thinking about a big box store, perhaps incorrectly, is that store personnels’ knowledge is an inch deep and a mile wide. These small format specialty locations are one way to remedy these common misconceptions.

How will these specialty stores leveraging the names of giant brand names shape the industry?  How severely will it impact the small mom & pop businesses and start-ups?