10 Ways Retailers are Transforming Excess Space

There is an overall trend in the retail industry towards smaller stores. It should also come as no surprise that the United States is overstored. The United States has the highest store space square footage per person in the world at 23 sq. ft. per person. In stark contrast, the United Kingdom has five sq. ft per person, Spain has four sq. ft per person and Germany has two sq. ft. per person.

This glut of retail space has contributed to a large number of store closures over the last several years. By late December of 2019 there were 9,302 store closures and 4,392 store openings in the United States. What’s a retailer to do? It has to figure out how to make space more productive and fast.

Many retailers as well as mall operators are racing to correct this issue. Department stores in particular that have large legacy store formats are experimenting with many ways to make their store footprint more productive. Some of the concepts they are testing are in very early stages so only time will tell if they attract more foot traffic.

Here are some of the ways retailers see their store formats evolving in the future.

Kohl’s – gyms and grocery stores

1. Last March Kohl’s announced a deal with Planet Fitness that will see Planet Fitness gyms located adjacent to 10 Kohl’s stores with the first one opening later on this year. Space in Kohl’s stores will be reduced in order to make room for the Planet Fitness gyms which are expected to take up to 20,000 sq. ft to 25,000 sq. ft. Kohl’s hopes that Planet Fitness customers will choose to buy activewear and accessories from Kohl’s leading to increased store traffic.

2. In what is another sign of Kohl’s desire to dominate the fitness category, Kohl’s is also partnering with WW (formerly known as Weight Watchers) to open a WW studio in one of its Chicago store locations. The studio will be 1,800 sq. ft and will host workshops on health and wellness and weight management.

Speaking about the focus on fitness, Michelle Gass, CEO of Khol’s has said: “[Active and wellness] has doubled over the course of the last four years. It’s now 20% of our business.” Kohl’s is planning on doubling down on fitness with plans to increase activewear and wellness merchandise, including accessories such as Fitbits by greater than 25% in 160 stores.

3. Discount grocery store Aldi, has signed leases to open up to ten stores within Kohl’s department stores.

Speaking about its rightsizing strategy Michelle Gass has said: “we continue to see our rightsizing strategy as an important initiative to not only leverage our real estate assets but also drive traffic to our stores through key partnerships.” “We see the rightsizing strategy as a large opportunity for Kohl’s.”

Macy’s – store within a stores and pop ups

4. In 2018 Macy’s purchased Story, a popular Manhattan based store. Story sold merchandise inspired by a key theme with products and a store layout that changed every few months. One of the key reasons for acquiring Story was to breathe new life into the 160 year old department store. Macy’s hopes that it can leverage Story’s ability to create exciting and engaging customer experiences to drive traffic within Macy’s stores.

Since the acquisition the original Story location has closed and in April of last year Macy’s rolled out Story shops to 36 Macy’s stores. These stores sell more than 400 products from a range of well-known brands as well as merchandise from over 70 small businesses.

The shops are small, measuring only 1,500 sq. ft. The theme, colour and merchandise within the Story shops within Macy’s changes every six to eight weeks.

5. The Market @ Macy is an area within Macy’s where pop-up brands rotate in and out. Brands using the space must sign on to stay there for at least one month. There is a one-time fee to use the space and the brands keep all of the revenue generated in the space. Speaking about the concept, Marc Mastronardi, Macy’s EVP of new business development and innovation said: "overwhelmingly, what we think makes this so attractive for Macy's and our customers is it continues to drive customers to stores by giving a constant break of discovery.”

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Hudson’s Bay – co working spaces

6. WeWork is partnering with Hudson’s Bay to provide coworking spaces. Coworking spaces have been added to the top-two levels of Hudson’s Bay’s retail space in downtown Toronto. Speaking about the initiative HBC’s CEO Helena Foulkes said: “from a financial perspective, the financial returns that we’ll get from those two floors will be higher than what we were generating.”

The space has a number of amenities including phone booths, conference rooms, high speed internet, cleaning services as well as on-site staff.

JCPenney – a barbershop, selfie and fitness studios

7. Late last year in an attempt to reinvent itself and increase sales JCPenny opened an experiential retail lab concept store in Dallas. The store coming in at just over 200,000 square feet is still large by most standards but JCPenney is testing a number of new features that if they prove successful could be rolled out to other stores and used in place of low performing departments.

Some of these experiential features include a number of firsts for the department store retailer including a Shutterfly Picture Pop Selfie Studio. The studio will replace the legacy JC Penney portrait studio. There store also features JC Penney’s first ever barbershop called the Barbery where customers can get a shave, a hair cut and can have their shoes shined. Similar to Kohl’s focus on fitness the store will house an instructor led fitness studio where customers can take a range of classes including yoga.

Office Depot – co working spaces

8. Office Depot is carving out space in its stores to create co-working spaces called the Workonomy Hub. The spaces offer desks and offices for rent as well as access to printing and copying stations. Users can also get tech support if required.

According to Office Depot CEO Gerry Smith: “we’re not trying to be WeWork and go to the high-end of the market. We want to be right in the mid-tier.” Renting a desk at the Workonomy in San Jose costs $400 per month which is $75 cheaper than what it costs to rent a desk at a WeWork location in the same area.

Staples Canada – co working spaces

9. In January of this year Staples Canada transitioned 4,500 sq. ft. of space in one of its locations in downtown Toronto into a coworking space. The space is called Staples Studio Coworking and it features printing, marketing services including web design, a dedicated space for events and guest speakers called Spotlight as well as a locally-run café called Mos Mos Coffee.

Designer and Entrepreneur Joe Mimram, was hired to help turn the pre-existing space into a beautiful new coworking space.

Staples is hoping that the fees to use the cowering spaces will make up for a 20% decrease in merchandise space that was used to create the new space.

Speaking about the space David Boone, Chief Executive Officer of Staples Canada, said: "we've designed this new store with community in mind. With Staples Studio Coworking, a café, the Solution Shop and thousands of new products, this redesigned location is a working and learning hub. We want to bring people together who are focused on personal and professional growth, to be an inspiring, affordable place for entrepreneurs, businesses and students to work, meet and collaborate."

CambridgeSide Mall – office space

10. With close to 75% of sales generated in malls being produced by the top 20% of malls in the United States, mall operators have also had to think about how to productively deploy space.

Excess space in some malls is being converted into office space. For example in CambridgeSide Mall in an area of declining foot traffic in the mall, the mall operator is transitioning 140,000 sq. ft of underutilized space into offices. Office tenants can be lucrative for mall operators since they tend to sign long leases.