"The Era of Big Box Retail Dominance Is Coming to an End
By David Welch, Chris Burritt and Lauren Coleman-Lochner - Mar 30, 2012
When Best Buy Co. (BBY) said yesterday it was closing 50 big stores and opening 100 smaller ones, the world’s largest electronics retailer was adjusting to reality: The era of big-box retail dominance is coming to an end.
The new mantra is small box. While Best Buy, Wal-Mart Stores Inc. (WMT) and Target Corp. (TGT) are still opening large stores, all are putting increasing emphasis on smaller ones. Best Buy plans to double the number of its smaller Best Buy Mobile stores by 2016. Wal-Mart is building as many as 100 small-format stores this year, while Target is opening five CityTarget locations.
After 50 years of putting mom and pops out of business, big-box retail is having a mid-life crisis. A slow economy has hurt same-store sales, narrowing margins at big stores. Meanwhile, consumers, armed with price-comparison technology, are visiting more stores seeking deals or exclusive merchandise rather than making one-stop, fill-the-cart excursions.
“We’re undergoing a seismic shift,” said Natalie Berg, an analyst with Planet Retail in London. “People are still cutting back. People are buying more products online so there is a real case for downsizing stores.”
Big-box retailers essentially come in two flavors: so- called category killers such as Best Buy that focus on one type of merchandise, and discounters like Wal-Mart and Target, which sell a broader range of goods.
Since the recession, big-box retailers have struggled. Until its third fiscal quarter last year, Wal-Mart had posted eight consecutive quarters of declining sales at stores open more than 12 months. Best Buy posted five straight quarters of profit decline before reporting a $2.6 billion loss on March 29, while analysts forecast declining same-store sales and profit for Target this year.
Since June 2009, when the recession officially ended, Wal- Mart shares have advanced 26 percent and Best Buy has dropped 28 percent, both trailing the 39 percent gain for the 32-company Standard & Poor’s 500 Retailing Index. Target shares gained 48 percent in that time.
Big-box retail was born in 1962. That’s the year that Wal- Mart, K-Mart and Target all opened their first large discount stores. As they grew, the new big boxes began offering broad selection and low prices to a growing population of suburbanites who had left the cities in their new cars, searching for their piece of the American Dream.
Big boxes boomed in the go-go 1990s. Fueled by an inflated stock market and loose credit, Americans expanded farther into the suburbs and filled their new homes with appliances andconsumer goods, said John Lupo, a retired Wal-Mart executive who now sits on the board of AB Electrolux. The housing boom propelled the big-box retailers into the new millennium. Then came the crash and consumers pulled back.”
Photo: A Best Buy store in Alexandria, Virginia. Andrew Harrer/Bloomberg