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Smaller-footprint retail offers challenges, opportunities to manufacturers

Retailers are moving into smaller spaces. The so-called “smaller footprint” store is rapidly replacing the “big box” that has dominated much of American retail in recent decades.

The advantages for retailers are obvious -- smaller stores cost less money, use fewer workers, can fit in the fast-growing urban areas where real estate is pricey, and allow for easier pick-up and delivery services.

The advantages for consumers are pretty clear as well -- more locations closer to where folks want to live translates into a faster and more convenient shopping experience.

The advantages for manufacturers? Not so much.

Here’s why:

Manufacturers that have grown accustomed to large displays, impressive shelf space and over-the-top product demos are going to find that the one element that makes all those marketing tools possible -- square footage -- is gone.

Smaller manufacturers in particular will feel the squeeze. Companies that already struggle to win shelf space at major retailers will find it exceedingly difficult to get new products placed in brick-and-mortar stores that are already bursting at the seams.

Little stores, virtual warehouses

That’s not to say that retailers won’t sell new products, or even that they’ll offer fewer products. On the contrary, in a world of smaller-footprint stores, retailers will place increased emphasis on assortment by placing an increased emphasis on online shopping.

A retailer with a vibrant online store doesn’t have to cut back on the SKUs, brands or anything else it carries. It just has to “carry” them in an online environment.

By having lots of small-footprint outlets in lots of areas, a retailer can build an extensive system of in-store pickup, easy returns and/or local delivery -- enabling the retailer to offer a much wider assortment than even the big-box stores could hold.

In fact, building a click-and-collect system and/or easy in-store local returns of online purchases could be a major competitive advantage for traditional retailers faced with the massive assortments of online-only behemoths like Amazon.

But who will hold and ship those products that traditional retailers would sell online?

Well, it seems likely that retailers will push manufacturers to bear that cost by functioning as virtual warehouses -- just as manufacturers bear the costs associated with online marketplaces.

Data-driven decisions

The smaller-footprint store is here for the foreseeable future. The biggest of the big boxes are all moving in that direction. Walmart, Target, Staples, Best Buy, Gap et al have been quite vocal about their let’s-get-small intentions since the end of the last recession.

Certainly the trend is not all-encompassing. Warehouse clubs like Costco, Sam’s Club and BJ’s remain committed to big spaces. But warehouse clubs are famous for offering a limited selection. Manufacturers who find themselves squeezed out of shrinking retail stores aren’t likely to find new placements for multiple SKUs at their local members-only warehouse.

So what’s a manufacturer to do?

The best bet is to develop new, more sophisticated partnerships with retailers.

Helping retailers navigate the new headaches caused by smaller formats would be one way to do that.

  • For example, workers in small-format stores will need training on how to manage in-store returns of items bought online. Manufacturers have expertise to share in this area.
  • Manufacturers that can make it easier for retailers to sell items that aren’t in the store, by offering better technology-based methods of sizing apparel, for example, also stand to win.

Regardless, manufacturers are going to have to fight long, hard and creatively to win a piece of the shrinking shelf space of the smaller-footprint era.

Looking for better ways to gain distribution for your products? Check out this fanciful story about some atypical approaches.

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