Smallville

By Charles Warner, Julie Solomon and Steve Miller

 

Nashville welcomed a new Dollar General store in January. Situated at the corner of 21st and West End avenues, the store celebrated its opening with a weeklong series of promotions and special events. For a brand that boasts over 13,300 locations across the United States, one new store opening is hardly unusual. Except for the one very important detail: this store is small. The new Nashville location is actually the first in a new line of smaller-format DGX stores that Dollar General is rolling out (the discount retailer also opened a second DGX in Raleigh, N.C., in late January).

At 3,400 square feet, DGX is approximately one-third the size of a typical Dollar General, designed to fit into urban environments and meet the needs of urban shoppers – a group Dollar General’s CEO Todd Vasos says put a high premium on value and convenience. To that end, DGX will offer a focused selection of consumable items and instate consumption options. Vasos says that the new compact format is geared to meet the needs of millennial shoppers and will allow DGX to serve busy city-dwellers with low prices for the essentials they need in a convenient, easy-to-shop format.

One of the most surprising things about DGX is just how unsurprising it actually is. In recent years, the retail industry has been doing its part to disprove the adage that “bigger is better,” with a wide range of retailers experimenting with smaller store formats and more compact layouts. Large-format retailers have been particularly active when it comes to creating compact and convenient new store designs aimed directly at meeting the needs of busy downtown shoppers.

Urban Access

From south Florida to downtown Atlanta, these new concepts from what have traditionally been large-format retailers are proliferating. With growing numbers of people moving back into redeveloped and revitalized urban centers, retailers are looking to leverage more flexible formats to move into previously untapped urban markets and connect with this increasingly important urban demographic. The most prominent group in this new generation of urban shoppers is millennials, the influential and coveted demographic that values the live-work-play dynamism that downtown environments have and continue to provide.

Dollar General is hardly alone in reconfiguring its typical larger store format into more urban-friendly concepts. Giants like Target, Walmart, Petco, Home Depo and many more are using these designs to get a foothold in markets they may not have been able to access previously.

To make such big shift work, however, you need to be fairly flexible. QuickTrip has a new location in Atlanta that, at 3,500 square feet, is about half the size of its standard stores. But size is not the only distinguishable characteristic: the smaller QuickTrip is open 24 hours, adds significantly more food and beverage options and does not sell gas.

Creativity and Flexibility

From new layouts and tailored design elements to strategic merchandising and a streamlined consumer experience, these newly compact retail concepts have often been redesigned from the ground-up. The look and feel of DGX, for example, is very different than a typical Dollar General. DGX features bold graphic elements and a streamlined design to facilitate a quick convenient shopping experience. The ultimate goal is to make the checkout process as seamless as possible for busy shoppers looking to get in and get out.

The unifying theme here is convenience, both in terms of store location and store experience/product selection. Retailers are gambling on the idea that a lot of people will pay a premium for that convenience. For millennials in particular, who have come to expect (and demand) the convenience that comes with new mobile shopping tools and the virtually unlimited selection available to them online, delivering that smooth and painless shopping experience is paramount.

Going from a large format to a smaller concept also means more strategic merchandising, with less iteration of the same product (perhaps one or two bottled water brands instead of six, for example) and a shift in food and beverages focus, DGX complements a limited selection of grocery offerings and household basics with a wider range of prepared food and drink options, including a soda fountain, coffee station and grab-and-go sandwiches.

In March, Target announced that it will open 70 small-format stores in 2017 with a focus on urban markets and college campuses. Recent examples of college town Target concepts include Chapel Hill, N.C. (a new 21,000-square-foot location opening in July of this year) and Gainesville, Fla. (a new 23,000-square-foot store, also opening in July.) Target is actually tailoring the merchandise to the neighborhood, with a selection of goods aimed squarely at the large student populations in those cities.

Unsurprisingly, retailers are also integrating technology and mobile-friendly features into these smaller urban concepts. While the eye-opening new self-checkout AmazonGo concept stores have gotten a great deal of publicity, features such as apps, beacons and convenient online and mobile order pickup stations are becoming a standard part of many new stores.

In many respects, these smaller, modified concepts are borrowing different elements from traditional convenience stores. But there might be an even better parallel: grocery stores and food markets, which have successfully demonstrated that adapting a larger concept to a smaller urban store format can work – and work well. Grocery brands continue to introduce new compact concepts and urban-friendly formats like the relatively new 365 by Whole Foods Market stores, two of which are currently under construction in Atlanta.

If At First You Don’t Succeed

With all the new development taking place in cities like Fort Lauderdale, Miami and Atlanta, it makes financial sense for retailers to actively look for new ways to break into those markets. Midtown Atlanta has approximately 9,000 new residents and capture those dollars could literally and figuratively pay off for brands that can successfully modify their formats to an urban-friendly scale. While plenty of retailers have done so successfully, and more are in the process of doing so, it is not always easy and it is by no means a sure thing. Walmart and Target have both had their own false starts in the urban/small store format arena and have gone through multiple iterations before figuring out what works and what doesn’t.

Urban locations also come with their own set of unique logistical and operational challenges, of course. As smaller stores occupy new spaces in urban cores, retailers are navigating around challenges that range from a lack of convenient parking to the difficulty of receiving deliveries and sending shipments when back-of-house access may be limited or nonexistent. Retailers are discovering that they have to do their due diligence, a process that may include everything from developing new processes, to measuring the size of the alley behind your proposed new store location.

Creativity and flexibility are required when it comes to solving problems that arise when a lack of space makes standard designs impractical or impossible. In southern Florida, for example, both Home Depot and Target have used multi-level parking decks and shopping cart escalators to fit into smaller footprints.

The creativity required to rethink and redesign large format stores into smaller layouts is clearly driving innovation. It is empowering retailers to not only be more creative and explore new concepts, but to refocus on cost and convenience. It is promoting many retailers to embrace new technologies, to challenge their own assumptions and rethink everything from merchandising to the design of aisles and checkout lines. Ultimately, this urbanization trend might extend well beyond busy downtown environments, serving as a kind of shorthand for a larger trend towards streamlined store designs and a renewed emphasis on meeting the demands of your customers. In that regard, getting smaller might have some very big implications for the long-term health of the retail industry.

Read the original article in Southeast Real Estate Business.

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