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Feb 1, 2008
"Retail categories have become so competitive that retailers are trying to come up with unique concepts to set themselves apart from each other," said Michael Dee, senior VP and national director of retail for Grubb & Ellis, a global brokerage firm in Dallas. "Probably now more than ever, customers have access to the widest variety of retail outlets in each category."
The most popular strategies today bring together some of the biggest players, who combine their brand power and marketing abilities, while sharing customers and space. Although these innovative strategies are emerging primarily among large chains, the ideas have ramifications for small independents as well. Furthermore, small retailers can benefit by paying attention to what the big guys are doing.
In 2007, Best Buy and Apple announced plans to expand their Mac pilot store within a store program that was initially launched three years earlier. This will take the concept from 57 locations to 200 units by this fall. Similarly, GNC, the vitamin and nutrition supplement supplier based in Pittsburgh, and Rite-Aid Corporation, based in Camp Hill, PA, have decided to grow their partnership by launching 1,125 additional GNC LiveWell centers within Rite Aid stores by the end of 2014. The two companies have opened 1,300 such units since December 1998.
These moves are allowing companies to expand in a much more cost effective and strategic manner. "You can be in all of the host company's stores without paying the higher rent that you would pay to be in your own building. So it gives you a chance to expand without the overhead of expansion," said C. Britt Beemer, chairman of America's Research Group, a retail consultancy in Charleston, SC.
In addition, the alignment of complementary services can garner both companies a larger consumer base, Beemer said. It's no coincidence that one of the most iconic tech brands would team with the country's largest electronics retailer. "I'm sure the Apple and Best Buy marriage is mutually beneficial, since it likely brings Apple customers in to shop at Best Buy, while Best Buy customers are exposed to Apple," he pointed out.
Even those who are not entering into retail unions are launching condensed stores in strategic locations. "One of the biggest changes that we are seeing in today's marketplace is that many of the mid size boxes, such as Best Buy or Circuit City, are working with smaller prototypes," noted Naveen Jaggi, CB Richard Ellis' senior managing director of retail and occupier services for Houston based CB Richard Ellis' Eastern region.
In the case of Best Buy, its shift in space requirements may be an outgrowth of its market saturation. Jaggi said approximately 68 percent of the US population resides within ten miles of a Best Buy location.
"They have basically covered the market, and as a result need to look at being in between two larger stores with a smaller prototype for locations that are not in the top 50 US markets," he said. "What you are finding is that a lot of these big and mid size boxes are starting to look at smaller units to further overall store growth, because they can't continue the same expansion pattern when they have already reached a saturation point."
With this modification of its concept, Jaggi said, Best Buy will likely gain an even stronger foothold in the marketplace. "Their test markets are showing that they are now able to reach areas they weren't able to before, by creating smaller stores that are less intimidating and more inviting to sell core products."
These new concepts are having an impact on traditional retail leasing and development. Retail property owners, facing fewer retailers calling for big leases, are luring smaller retail tenants. One shopping center owner, for example, is creating shallower spaces instead of the traditional ones of between 60 and 80 feet deep. This creates more frontage for a smaller space retail tenant.
Steve Graham, VP of destination development for Red Development, in Kansas City, MO, said he is definitely noticing more retailers attempting to broaden their consumer base with unique in store experiences. Sporting goods retailer, Scheels, Graham said, has one of the most notable design concepts of all of its tenants.
With locations in Red's Village Pointe in Omaha and South Pointe Pavilion in Lincoln, NE, Scheels not only offers sporting simulators, but also a fudge shop and Starbucks, said Graham. "They're offering a lot of activities to provide an experience for their customers, while establishing a unique presence in their category."
Another retailer keen on giving its customers a memorable experience is Lego. The Danish toy retailer recently rolled out a concept, Legoland Discovery Center, in Berlin that blends its retail offerings with that of its famed Legoland theme park.
Beyond leaving a lasting impression on shoppers, these new concepts can keep people in the stores for longer periods of time, said Dee. Whole Foods Market, he noted, has been inventive in capturing their customers' time, attention and money. Last December the grocer unveiled the Spa by Whole Foods in Dallas. The full service day spa features a nutritionist, naturopathic doctor, estheticians and massage therapists. A smaller version of the concept was opened this past September in San Francisco.
"You can shop for groceries, have a meal and even go in and have a massage, a manicure and a pedicure. It's a very interesting example of how they not only attract consumers, but also try to keep them in the store. I believe the thinking is the longer you keep them, the more they are going to buy," Dee suggested.
The pace at which consumers will continue to buy has certainly come into question with all of the talk of a looming recession and a decline in consumer spending. But both brokers and developers are generally optimistic that even with a slight slowdown, the retail sector should remain on stable footing well into 2008.
This article was edited from a story that initially ran in Real Estate Forum magazine and on the GlobeSt.com/retail website.
Topic: Business Strategies
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