In October, Wal-Mart (www.walmart.com) announced that they expect their profits to drop as much as 12% next year due to wage increases and investing in inventory systems. Trying to catch up to Amazon (www.amazon.com) by boosting their online sales will also dampen the Wal-Mart profit outlook. And it’s not just Wal-Mart adjusting its business model, and in some cases store size, to better compete with Amazon.
Although it’s to their vendors’ dismay, Wal-Mart is being very aggressive about managing the number of items they stock. Wal-Mart is not only reducing the number of items they stock, but they are also decluttering and increasing the size of their aisles. The end result is an increase in sales and the initiative to declutter their stores and reduce the number of items they stock will eventually lead to smaller stores. Wal-Mart has been slowly decreasing their store size and introduced their 40,000 sf Walmart Neighborhood Market, a grocery store. It’s all about customer convenience – improve the experience and increase sales. By making their big box stores easier to shop in and putting smaller stores closer to their customers, Wal-Mart will increase sales.
Kohl’s (www.kohls.com) is also trying to get closer to their customer. Corporately, Kohl’s is in the midst of a three-year turnaround plan with a goal to add $2 billion in sales by 2017. To reach its sales goal, Kohl’s recently announced that it will be
rolling out a new format with a store size of 35,000 sf compared to their traditional store-size of 80,000 sf. This smaller building will allow Kohl’s to pursue real estate they would have been priced out of or was simply not available. The smaller-store initiative will also enable Kohl’s to introduce themselves to new customers and be less-reliant on their traditional suburban customer base.
The message is straightforward: get smaller to get bigger.
Increasing sales by reducing store size or introducing smaller concepts will continue for the foreseeable future.
The Wall Street Journal, Wal-Mart Shrinks the Big Box, Vexing Vendors, October 26, 2015
Fortune, Kohl’s to open smaller stores and outlets in new turnaround moves, October 27, 2015.