Office Depot, other retailers pushing big to go smaller
Supersizing is out, and when it comes to retail stores, smaller is better.
Despite predictions a decade ago that brick-and-mortar stores would die, that has not happened.
Instead, smaller-format stores have debuted in response to competition from Internet sellers, rising costs and the overall economic downturn.
“It is the biggest trend. The most dramatic example would be Wal-Mart, obviously. It is 10 percent of U.S. sales. They are building smaller inner-city stores,” said Howard Davidowitz, president of Davidowitz & Associates, a national retail consulting and investment banking firm based in New York.
“Best Buy, Kohl’s, Staples, Target and Office Depot are building smaller stores as well. Frankly, almost everybody is downsizing their stores,” Davidowitz said.
“The overhead is less. The rent is less. The investment is less.”
Boca Raton, Fla.-based Office Depot Inc. is revamping many of its stores, remodeling them into more compact and shopper-friendly versions.
They range from about 5,000 square feet, one-fifth the size of a traditional Office Depot, to about 15,000 to 17,000 square feet.
“Customers say the smaller format makes sense from a shopping perspective,” Office Depot Chairman and CEO Neil Austrian told investors this week.
“I don’t think anyone in the retail business today can look ahead and say that a large box is what is going to make sense over time.”
So far, 41 Office Depots have been transformed.
On Tuesday, Office Depot reported a second-quarter loss of $64 million, or 23 cents a share, compared with a loss of $29 million, or 11 cents per share, a year ago.
Total company sales for the quarter fell by 7 percent to about $2.5 billion.
Its management team estimates that converting a couple of hundred stores to the smaller format could reduce operating costs by as much as $100 million a year.
Steven Schmidt, Office Depot’s International Division president, said competition is increasing globally, particularly on the Web.
“Category killers, just as in North America, continue to pop up all over the world,” Schmidt said.
“We are seeing more competitors show up on the Web every single day. We have to provide a customer experience that is better than or equal to competition so customers want to do business with us.”
Office Depot has committed $30 million this year to remodel or downsize 30 to 35 stores and relocate 25 to 30 stores with expiring leases.
Leases on more than 60 percent of its North American stores — with 1,111 stores in the United States — are expiring within five years, Austrian said.
The company’s strategy includes such options as retaining their format and location, downsizing, relocating within the same market or closing.
In 2013, more than 100 stores could be affected, Austrian said.