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'Big box' retailers may have to rethink strategy
(Montgomery Advertiser (AL) Via Acquire Media NewsEdge) Jan. 4--National chain retailers, the so-called big-box stores, may have to rethink their formula for deciding how many stores to put in a market if the economy remains soft, according to one retail expert.
Kristy Reynolds, a professor of marketing and management at the University of Alabama, said that slow sales are affecting the formula for some retailers.
It is possible, she said, for a retailer to reach market saturation in a specific area. When that happens, the stores start to take customers from other stores in the same chain, not just from competitors.
Daniel Butler, vice president of retail operations for the National Retail Federation, an industry trade association, disagrees, to a point.
Retailers, he said, are very careful about where they build new stores. New construction is planned well in advance, some times as far as seven years, so short-term trends rarely affect plans.
The stores themselves generally treat strategic plans as proprietary information. Each chain has its own formula for determining what population and demographics are needed to support an outlet, but those formulas are closely guarded secrets, Reynolds said.
"Most retailers use those kinds of models," she said.
The recently declared but year-old recession is likely to change the models for at least some retailers, she added.
While retailers are mum on long-term plans, several announced reductions to new stores planned for 2009. None of those reduced openings have specifically targeted the Montgomery market, but some chains have announced cutbacks that will impact the area.
Perhaps the hardest hit sector is consumer electronics, where national retailers Circuit City and Best Buy are reporting difficulties.
Circuit City entered bankruptcy before the holiday shopping season and was counting on a sales surge to keep it afloat.
Best Buy remains profitable, but its profits fell sharply in the most recent quarter, prompting the chain to announce cost-cutting measures.
It will reduce its 2009 store openings by about 50 percent and offered most of its corporate employees buyouts, the company announced recently.
Other chains have announced a reduction in store openings.
Some, like Office Depot, announced closings to many of its stores. The chain will close in the first three months of this year more than 120 stores, including one at 4055 East Blvd.
Most of the stores are closing because of slow sales, while others are closing because of unfavorable leases.
Office Depot refused to say why it was closing a Montgomery store, but the chain has two other Montgomery locations, plus one in Prattville.
Having multiple locations in the market is not unique to Office Depot. According to company information, Wal-Mart is the king of the big boxes in Montgomery with eight stores scattered through the market.
That is no surprise, as the National Retail Federation ranks it the No. 1 retailer in the United States. Rival Target, No. 6 on the poll, has two stores.
Home Depot, the No. 2 retailer according to NRF, has three stores in the market, as does Lowe's.
Best Buy and Circuit City, Nos. 12 and 32 on the list, each has a pair of stores in the market as well.
In many cases, it is possible to stand in front of one store and see the rival's store. That is no accident, according to both Reynolds and Butler.
Stores often want to be near their main competitors for a variety of reasons. Now, they often want to be near certain non-competing stores as well, and that accounts for the impression that big-box retailers tend to cluster, Butler said.
"They know who will be a good neighbor in a retail space," he said.
He said it is that level of planning and research that makes it unlikely that any single down season will doom a retailer.
A single season of slow sales can hurt, but if a retailer is in a solid financial position, it will survive.
That is why retail giants may delay opening new stores, but rarely shelve the plans completely.
"Retailers know there are ups and downs in the retail cycle," he said. "They may want to slow their growth in some markets."
He said for retailers planning a growth spurt, a recession can be time to gather resources.
Typically, a downturn in sales is followed by up to five years of strong sales growth.
In the end, he said, the formula that shows when and where it is appropriate to open a store works.
"Consumers decide if they are going to shop in stores," he said.
It is far more widespread than Montgomery, according to national experts.
Retailers will close tens of thousands of stores in 2009, and several more will file for Chapter 11 bankruptcy protection as the effects of the worst holiday retail season in 40 years sink in.
"Every retailer is looking to reduce their footprint," said Michael Dart, principal at Kurt Salmon Associates, a retail industry analyst firm.
The fallout started before Christmas and has continued immediately after: The Parent Co., operator of eToys.com, announced last week that it had filed for Chapter 11, while KB Toys, Ann Taylor, Sears, Talbots and Circuit City previously announced the closures of some stores.
"Retailers will asses every location, and if it doesn't make a profit, it's gone," said Marshal Cohen, chief industry analyst at NPD Group.
The International Council of Shopping Centers projected in October that 148,000 stores would close in 2008, the largest number since 2001. It said an additional 73,000 stores would close in the first half of 2009.
That number could grow. December sales will be reported on Jan. 14, but early surveys indicate spending is almost completely frozen. MasterCard's annual SpendingPulse report released late last week showed retail sales fell 2 to 4 percent for the holiday season. Sales of electronics and appliances fell 27 percent. Women's clothing fell 23 percent.
"We see a sustained, protracted and prolonged shift in consumer behavior through 2009 and 2010," Dart said. "This is not just one bad holiday season."
For the first time, holiday online shopping declined this year. Spending was down 2 percent from Nov. 1 to Dec. 21, said market researcher ComScore."
This is bad, considering that online holiday sales, year-over-year, have been up about 20 percent every year," said Don Davis, editor of Internet Retailer, a trade magazine.
Exceptions were Amazon.com, Apple.com and Walmart.com, which saw 6 to 10 percent surges in traffic. Amazon.com said Friday that it recorded its "best ever" holiday season with a 17 percent increase in orders on Dec. 15, its peak day.
Online sales could have been worse. Strong promotional efforts by online retailers, such as discounts and free shipping, persuaded many consumers to shop, said Andrew Lipsman, director of industry analysis at ComScore.
At least one market researcher said this year's online holiday season wasn't that bad. EMarketer predicts spending will rise 4 percent to $30.3 billion, though that's about one-fifth the growth rate of the past few years.
USA Today contributed to this report.
To see more of the Montgomery Advertiser, or to subscribe to the newspaper, go to http://www.montgomeryadvertiser.com.
Copyright (c) 2009, Montgomery Advertiser, Ala.
Distributed by McClatchy-Tribune Information Services.
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