Posted: Wednesday, August 25, 2010 4:04 pm

Sofa-bed from the John Lewis home range

Can smaller format stores work for department stores?
 
Recent developments have seen DIY retailer B&Q announce plans to open small-format city centre stores across the UK, featuring significantly more homewares than existing stores, whilst Tesco has revealed intentions to launch a fashion format in the West End offering an extension of its F&F range, previously named Florence & Fred.These moves both follow John Lewis’ launch of ‘John Lewis at home’ stores, announced in October 2009; two more ‘at home’ branches are due to open in the autumn, and will take the total number to four. So the important question is can smaller format stores work for other department stores? What are the benefits and what should retailers consider before launching into such an expansion?    

Tim Denison
BSC MSC PHD MCIM  
I’ve said on more than one occasion in the past that some store formats are simply now too big. On the face of it, being able to offer the largest ranges offers competitive advantage. However, it means more cash is tied up in stock – not something that is desirable at the moment. Just as importantly though, customers can find that too much choice makes their decision-making more taxing and the whole experience far less pleasurable. In my view a successful retailer is one that works carefully at editing the ranges it offers its customers, such that true choice is still offered, but customers are spared the hardship of evaluating shelf upon shelf of models with barely any differences between them. Any retailer that offers excessively extensive ranges is simply highlighting their marketing frailties of not understanding their customers needs well enough. 
So the concept of smaller store formats has some appeal to me. They too can have their drawbacks in this world of convenience and demand for one stop shopping. As long as the retailer communicates clearly their purpose and proposition, and they meet a market need that has been carefully researched, small formats can successfully extend a retailer’s geographic reach and penetration. 
Tesco, to mention but one, has demonstrated that multi-size formats can work. Most recently the company has announced plans to open a store in the West End, specifically to showcase its latest clothing ranges. Some would argue that this is an expensive and extravagant way to build profile and product awareness. To others it demonstrates once again the fresh thinking that Tesco brings to retailing, tackling head on how to raise visibility and be seen above the haze of competitors. The British shopper will judge ultimately whether the initiative is successful.
For the more conventional department stores, building a smaller format that serves a clear purpose and that customers will cherish is not straightforward. After all, it is the breadth of range and extended choice upon which department stores have built their standing and reputation. That said, I recently ventured to Oxford Street specifically to compare and contrast ranges of crystal glassware at a flagship department store, prepared and expecting to find the greatest conceivable selection. To say that I was underwhelmed by the choice and the whole experience is a gross understatement. Perhaps my expectations were too high, after all one cannot rationally expect a department store nowadays to have the fullest product range in every category. As I have argued above, it is not desirable in everyday shopping. When, however, you journey on a once-in-a-while mission, when you are happy to put effort in to know that you have found the best product on offer, perhaps there is scope for department stores to spin-off smaller specialist stores that can offer extensive depth of product and knowledge, focused on a category.

Graham Hoyle
Managing partner of Retail Performance Improvement  
Yes, of course smaller format stores can work for other department stores, but, only if they can really play to their product strengths!
What B&Q and John Lewis are doing is exactly that, playing to their individual, well known, well-recognised and appreciated strengths. Tesco manages to do this rather well with its varying formats, ensuring everyone knows the difference between a Tesco Express and a Tesco Extra. So, it is incumbent on anyone thinking about such a venture to really examine their own core retail strengths. What are they? How do they compare and contrast to other similar competitors in that specific product field? How well might these stand up to being separated from the rest of the store’s offer? After all, for many customers the strength of a given department store is often in the breadth, width and depth of choice that the store offers, along with the experience of visiting and shopping the whole store as a shopping destination.
If you were to decide to embark on a small format store, where would you locate it? Within the heartland of your existing trading catchment, or somewhere outside, where the danger might be being less well known for your name or product offer or even customer service? Consider where geographically might be under-represented in your core strength.
Careful research needs to be undertaken before stepping down this path. You need to understand your existing customer, their motivations to visit and buy, how they see your core strengths as opposed to the overall total store offer. What indeed does make your department store better, different and special in your existing customers’ eyes? And what do non-customers perceive you as?
Such research might actually lead you to believe that you could be better strengthening your existing offer, in your existing location; capturing more of the available spend, rather than going off and replicating your core or best offer elsewhere at additional cost and risk.
We have done a number of similar consumer and market research projects for clients over recent times and inevitably the question of what we can do better in our existing site or sites is a key question to answer. Retailers need to know and fully understand that which they have, or don’t have, to fully maximise their trading opportunities, before they go off and sign another lease.
However, as they say, it takes interesting times, to present interesting opportunities: ‘pop-up shops’ now represent an interesting opportunity to test and trial whether small formats can work. With ever-increasing availability of temporary retail space a number of retailers are trialling both formats and potential locations. Harvey Nicholls recently opened a pop-up shop for its food offer in the Trafford Centre, H Samuel are trialling a jewellery format in Altrincham, Cheshire. Up and down the country there are various retailers testing varying formats on a temporary basis, at low risk, to see how they trade. With landlords keen to fill empty units, even for a short period, now could be an interesting time to at least explore the opportunity. 
However, a final word of warning for all department store retailers: know what you have before you go off elsewhere. What might be your perceived strength may not be in another trading environment. Do your research first, fully understand what you consider your strengths against your competitors and importantly, against consumers perceptions and expectations.
I like what John Lewis are doing, they will bring their ‘at home’ products to a greater number of consumers, and, consumers, because of the John Lewis legend will I am sure respond most favourably, I expect them to be successful, but they have a format and a formula that is both renowned and respected, as well as profitable. I guess the question is, do you?    

Mike Pretious
Lecturer in marketing and 
retailing at Queen Margaret University, Edinburgh  
Opening smaller stores with edited ranges of products is a way for retailers to stretch their brands, and a number of prominent companies have experimented with different formats. Debenhams now has 18 ‘Desire’ stores, located on high streets and in retail parks, largely selling women’s fashion and cosmetics. John Lewis plans to develop up to 50 ‘at home’ stores, capitalising on its market strength in home furnishings and electrical goods. Marks and Spencer has made significant strides with its ‘Simply Food’ business, despite having closed some under-performing units last year. Tesco and Asda have both trialled stores that focus on their non-food offers, with varying degrees of success.
There are a number of reasons why retailers, and particularly department stores, choose to expand in this way. In part it is simply opportunistic, perceiving a niche where a particular element of the company’s product offer is especially strong and moving to exploit this. Sophisticated product analysis offers scope to concentrate on fast moving high-margin lines rather than stock slower selling, more basic ranges. An important consideration too is the cost and difficulty of opening a large store; premises of the right scale rarely become available on traditional high streets, and shopping malls, whether based in a city centre or out of town, do not open frequently, particularly in the middle of a recession. Thus the readier availability of smaller shops dictates the mode of expansion for retailers in some circumstances. A good example of a department store seizing an opportunity in this way has been the opening of several targeted units by Harrods at Heathrow Airport, capturing travellers in an environment where they are highly susceptible to making discretionary purchases.
The biggest danger faced by retailers in extending their brand footprint is if they move into product lines that their core customers don’t associate with them. Marks and Spencer’s ill-fated ‘Lifestore’ venture, adjacent to the MetroCentre in Gateshead, was a classic case study of a retailer attempting to extend its brand too far up-market. Department store closures more generally, especially those of provincial independents, have been largely due to a failure to understand the changing nature of the consumer and to read the way that different product categories have become polarised on the price spectrum. At one extreme, luxury goods are resistant to recessionary pressures, at the other, shoppers are driven to search for value for money. Whether maintaining an existing business or extending the franchise is the aim, positioning the offer appropriately in the market is absolutely critical.    

Tim Ogle
CEO, Retail Eyes  
With so much unoccupied retail space there is a great lure for large department stores to snap up positions on high streets and shopping centres around the UK. Small format stores are a great way of reaching out to more customers and can be used as a springboard to drive footfall to the larger stores. However, these retailers should take a moment to consider their ability to deliver the same experience received by their customers in their larger stores. The arrival of well-respected department store brands will undoubtedly generate an atmosphere of excitement and expectation. Retailers must work hard to ensure that customers receive a consistent experience and that their existing success and reputation is only enhanced by introducing smaller format stores. 
As multi channel/format retailing has increased one of the biggest challenges retailers face is maintaining consistent customer experiences. This has been most apparent in internet retailing where, in the rush to have online stores, many retailers overlooked the users’ experience and found themselves providing a poorer service compared to their bricks and mortar brothers. This left customers with negative feelings for the brand and tarnishing their reputation, something that retailers considering launching city-centre style formats of  their stores must keep in mind.
Retailers must also decide if their smaller shops are to be scaled down replicas of their existing stores or more specialised, such as ‘John Lewis at Home’, where customers will expect higher levels of staff knowledge. The larger stores will need to act as a showcase for these smaller shops and highlight the added value the store can bring. If the retailer decides to operate a scaled down version of their stores, they must avoid the temptation of solely using the format as an advert for the larger shops. Smaller stores won’t carry the same depth of ranges and must ensure they have communication processes in place with their large counterparts to help bring product to the store or for the customer to have the option to be able to reserve a product in a bigger store. 
By default, the brand will be touching more customers, which can have both positive and negative effects to a brand’s reputation. It will be vital for these retailers to keep their finger on the pulse of the customers in the smaller formats. Ongoing customer feedback should be sought and shared between both large and small format stores.
Regardless of the size or focus of the store, customer experience must remain paramount to ensure longevity in these new formats. 

   
The experts…  

Dr Tim Denison
BSC MSC PHD MCIM
Tim is director of Synovate, specialising in performance improvement systems for retailers. Trained as a social scientist and a marketer, Tim has worked for Synovate for 11 years and previously managed the Centre for Advanced Research in Marketing at Cranfield School of Management.  

Graham Hoyle
Partner, Retail Performance Improvement
Graham has worked with many big names including WHSmith, Beaverbrooks, and House of Fraser. The RPI team analyses business, and works to implement proposals to deliver improved profits.  

Mike Pretious
Lecturer, QMU
Mike lectures in marketing, consumer and retail management at Queen Margaret University, Edinburgh. Prior to becoming an academic, Mike worked primarily in the retail clothing sector and held buying roles for a number of major companies including Selfridges, Mothercare and the Burton Group (now Arcadia.)  

Tim Ogle
CEO, Retail Eyes.
Tim is the CEO of Retail Eyes, which specialises in improving customer experience.