When it Comes to Retail, it’s Time to Think Small

Investors should consider whether big is always better in retailing and invest accordingly.

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So much for barnstorming into Canada and charming the Canadian consumer. It’s been a tough lesson for Target (NYSE: TGT). Walmart (NYSE: WMT) is finding growth slow as well. Sears is down and maybe out, while Canadian Tire (TSX: CTC-A) is rethinking its merchandising philosophy.

For Nordstrom and the rest who have ideas about the Canadian market, it ma be time to think small. Investors should consider retailers doing some or all of the following in the Canadian market.

1. Lower competitive pricing

The Canadian consumer is sick of the huge retail price difference between a retailer’s U.S. and Canadian stores. Target now knows this following its initial missteps. This week, the company dismissed its Canadian operations president, Mr. Tony Fisher. This firing occurs two weeks after the resignation of Target Chief Executive Officer and Chairman Mr. Gregg Steinhafel.

Canadian shoppers balked at Target’s out-of-stocks and higher retailer prices. In the prime southern Ontario market, it is very easy for shoppers to make day and weekend trips across the border at Buffalo and Niagara Falls to buy at U.S. Target stores. Target did not think small in its pricing. It could have gone for greater volume at the expense of some margin, especially in Ontario.

2. Small stores within the store

It’s not about departments almost blending generically into one another loosely anymore. Ask Canadian Tire. The company’s new philosophy is to focus on departments operating as distinct small boutiques under the umbrella of the overall Canadian Tire brand.

In essence, a visit to Canadian Tire, with its transformed auto parts and service department, as well as home repair and sporting goods departments, will mean visiting unique shops steps away from each other. The Canadian Tire shell that houses them becomes, in reality, its own mall front.

3. Small specialty departments catering to luxury niche markets

Hudson’s Bay (TSX: HBC) has its luxury Kleinfeld Bridal boutique as part of its new strategy to build sales. The company’s objective is for brides to venture into the boutique at its flagship Toronto store and subsequently put their name down for the gift registry. The company’s gift registry business currently has approximately 50,000 registrants.

Hudson’s Bay is the leading place for wedding registries in Canada. Successful wedding registries are conducive to sales growth because the wedding couple and their guests visit. The potential is there for all of these to become regular store customers.

Ms. Liz Rodbell, Hudson’s Bay president, said, “It is all integrated because of the gift registry opportunity. We’re building Hudson’s Bay to be a home destination.”

4. Smaller expenditures

Home Depot (NYSE: HD) accomplished this a few years ago. At the height of the financial crisis it closed 15 stores that weren’t performing up to expectations. In addition, the company closed its EXPO home-design business in 2009. Furthermore, it cut corporate staff.

In 2009, Home Depot also launched its “automated checkbook” technology program in stores. Consequently, stores managers can view their order. They can then compare these orders to how much funds they have in their budgets. This helps store managers curtail unnecessary expenditures.

5. Smaller stores tailored to specific communities

Walmart has its Walmart Express stores, which are a smaller format. They also go by the name Walmart Neighborhood markets. This past January it opened a new one of this type in Columbia, Missouri. This Columbia store is significantly downsized at approximately 3,700 square feet.

This Walmart Express store features a pharmacy and offers groceries and general merchandise.Walmart Express stores generally range from 12,000 to 18,000 square feet. Walmart also has its Walmart Discount stores. These are the mid-level size of the company’s range. These stores average 108,000 square feet.

Lower price points, fewer store openings in a year, smaller specialty departments under a store’s umbrella, lower costs, and smaller community stores can position retailers for growth. The new way to retail borrows much from days gone by. Investors should consider this and invest accordingly.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Michael Ugulini has no positions in any of the companies mentioned in this article. 

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