Small stores, big profits, retail’s new success mantra

Looking at the high rentals and low footprint in stores, many retailers are downsizing their shops to turn profitable. Shoppers Stop for example, reduced the size of five of its stores to more than half compared to earlier 80,000 sq. ft. It plans to downsize the rest of 14 stores too later this year. HyperCity

too has followed this concept of reducing store sizes and they are not the only one carrying out this exercise even others like Spencer’s Retail have been following the small store format by focusing on high margin categories like fashion and bringing down percentage of those categories that did not garner positive response.

Low consumer buying impact

The reason for cutting down store size is the economic slowdown and lesser number of shoppers. Inflation has added to their woes. Now retailers are only interested in profitable business rather than big businesses consuming a lot of money.

When they opened big size stores, they expected huge crowds to shop from within a 10-kilometer radius merely because of the international shopping experience and variety they offered. But it did not seem to have worked in their favour. They attribute the failure to attract footfalls to problems like poor infrastructure and traffic jams. Plus, most of their shopping needs are met by the local mom-and-pop stores that also deliver goods at their doorstep.

Aditya Birla Group’s More chain shut more than 40 of its unviable stores and opted for smaller size outlets. The high operating costs have further marred the enthusiasm of running big sized stores.

E-commerce, a game-changer

Advent of e-commerce too has played a large role in poor performance of physical retail. Online retail has made life easier for customers. They can choose, shop, exchange and also select the payment method sitting at home. This new trend has spread like viral even to smaller towns, further negatively impacting the hypermarket businesses.

According to Matthew Crabbe, Asia Pacific research director at Mintel in Kuala Lumpur , the shift to smaller size stores also shows the developments taking place in other emerging markets such as China, where Carrefour and Walmart have experimented with smaller hypermarkets and mini supermarkets in smaller locations. The Western big-box model, according to experts is not making sense at this point of time.

Even Reliance Retail is turning some of the largest shops into wholesale or cash-and-carry outlets that cater to bulk buyers. Metro has been successful with this format in India and even Walmart, after splitting with Bharti has adapted the similar pattern for both-offline as well as online business and has announced aggressive expansion plans of such stores in the country.