To reduce costs, chains downsize

March 4, 2012 at 12:00a.m.

McClatchy Newspapers

KANSAS CITY, Mo.

To Neng Yang, the Best Buy store in Independence, Mo., is just too overwhelming — so much so that she only shops there once a year, at the holidays.

So when she needed a new cellphone, she bypassed the 55,000-square-foot store with its many departments — appliances, big-screen TVs, computers, cameras, car audio, video and music. Instead, she stopped across the street at the Best Buy Mobile store.

The slimmed-down 850-square-foot sister store concentrates only on mobile devices.

“I ask about a thousand questions, and this is more personalized, more one-on-one attention,” said Yang of Blue Springs, Mo.

Yang bought a white Droid Razr, and her brother, John Yang, picked up a black one.

Bigger is not always better. Just ask the biggest retailers in the country — and their customers.

The recession and the growth of online shopping have conspired to cut chains down to size. One strategy they’ve employed has been to close underperforming stores. But Best Buy and an increasing number of companies are trying another strategy too — going smaller.

Among the retailers testing smaller concepts are Blockbuster, Ann Taylor, the Gap, Kohl’s, Lowe’s and Sports Authority. RadioShack is even is trying a “store-within-a-store” format in several OfficeMax stores in California.

Restaurants are also thinking small, including Leawood, Kan.-based Houlihan’s Restaurants Inc., which has eateries in 17 states.

Lower square footage makes for lower construction and remodeling costs, and that also tends to make them easier to finance. The smaller sites have less overhead costs and can be run by fewer employees.

The small size also gives the chains more flexibility in locations, allowing them to squeeze into heavily developed urban centers, and compact spaces in airports, college campuses and strip centers. If the location isn’t successful, the chains can close the sites down with less financial fallout.

“For a decade it was ‘build it and they will come,’” said Candace Corlett, president of WSL Strategic Retail in New York. “It’s definitely a correction for retailers as well as restaurants, a direct result of consumers not having as much to spend on the extras. The strategy has to be to reduce your costs to offset less traffic.”

Jeff Green, president of Jeff Green Partners, Phoenix-based real-estate consultants, has long criticized the “bigger is better” movement.

“They think the bigger they are the more exciting they are and that’s not necessarily the case, as Apple has proven,” Green said. “Consumers like the smaller stores, like to be part of a ‘happening,’ and smaller stores have that feel.”

When retailers such as Ann Taylor, Chico’s and the Gap opened larger stores, they didn’t necessarily see an equivalent rise in sales, if any rise at all, that would justify the added expense, Green said.

“Any retailer that is opening larger and larger stores, I question their long-term viability,” Green said. “Costco and Sam’s Club defy that theory. That’s because consumers really perceive them as great values and value trumps the inconvenience of size.”

When Houlihan’s converted a smaller Houston’s restaurant in Fairway, Kan., to a Houlihan’s nearly a decade ago, they found it was nearly as profitable as its full-size restaurants, even those with an outdoor patio. The company plans to open five restaurants under the smaller prototype this year.

The stores are about 20 percent smaller in size, or about 5,500-square-feet, and seat about 180 customers compared to about 225 in the previous prototype.

“The key is how efficient these small units are to build — smaller upfront investment cost, better operating efficiency,” said Jen Gulvik, spokeswoman for Houlihan’s. “And I think people are hungry for a more intimate dining experience, more neighborly.”