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Entrepreneurs, Beware: Big Restaurant and Retail Chains Are Thinking Small

March 9th, 2012 ::

By Rieva Lesonsky

Independent retailers and restaurant owners who compete against massive chains have long felt that being small offers an advantage in terms of greater personalization. But now big retail and restaurant chains are honing in on what’s been the independent advantage: They’re testing smaller locations, reports the Kansas City Star.

Huge corporations including Best Buy, the Gap, Kohl’s, Lowe’s and Sports Authority are among the retail chains testing smaller-sized stores. In the foodservice arena, Houlihan’s and Sweet Tomatoes are two chains trying smaller eateries.

What’s behind the trend? The recession is one big motivator. Smaller stores cost less to lease, build or remodel, making it easier to get financing for them. They also have lower overhead costs to run and require fewer employees. Smaller footprints give chains more flexibility in finding locations in crowded markets. And if the store’s sales aren’t up to par, it’s easier for the company close the location without a huge loss.

Beyond small size, retailers and restaurateurs are getting creative with spaces in airports, at colleges and even on military bases. RadioShack is testing a format that creates a “store within a store” in some OfficeMax locations.

When retailers like Ann Taylor, Chico’s and the Gap opened larger stores, they didn’t necessarily see an equivalent rise in sales, if any rise at all, that would justify the added expense, Green said.

“Any retailer that is opening larger and larger stores, I question their long-term viability,” Green said. “Costco and Sam’s Club defy that theory. That’s because consumers really perceive them as great values, and value trumps the inconvenience of size.”

Careful targeting is key to this strategy’s success. For example, with its smaller Cabela’s Outpost Stores, retailer Cabela’s is targeting smaller markets but focusing on areas where a large proportion of the population is already customers.

Companies contend the greater intimacy of smaller locations appeals to customers. And having more small locations, as opposed to one massive “destination” location farther away, makes it more convenient for consumers to shop or dine on impulse. Restaurant chain Sweet Tomatoes, for instance, says it has put smaller units as close as 10 minutes’ drive apart. Convenience is a big factor in a world where retailers are competing against the Web for sales.

When it comes to big corporations, of course, small and intimate are relative concepts. The smaller Cabela’s stores, though about one-fourth the size of a traditional Cabela’s, still weigh in at about 40,000 square feet—not exactly a tiny, neighborhood boutique. And Houlihan’s smaller restaurant concepts are about 5,500 square feet—just 20 percent smaller than a traditional location, and bigger than most independent restaurants.

How can you compete as larger chains get small? Play up not only your size, but also your independent stature. Provide personalized service and, if a “small” big chain that competes with you opens up in your area, be on top of what they’re doing so you can stay one step ahead.

Image by Flickr user Maxwell Hamilton (Creative Commons)

 

The views expressed here are the author's alone and not those of Network Solutions or its partners.

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