Friday, February 11, 2011

Repost: Death of the Big Box

With the imminent crash of Borders into bankruptcy I was reminded of this post from December 3rd, 2008.

Travel up Route 17 in northern New Jersey and you traverse the spectrum of retailing. These stores - from Ikea to K-mart - represent the shop windows on late 20th century retailing but, in contrast to their apparent ubiquity, the days of the stand-alone big box may be numbered. A number of years ago, I saw some old photos of Route 17 and was shocked to learn it used to be a four lane (two each side) parkway with a wide grass median strip bisecting its length. Today, it is a clogged eight-lane shopping aisle and is just one of similar examples across the US from Rockville Pike in MD to Beach Boulevard in Orange County, CA.

Barnes and Noble, on their call a week ago, noted that many of their leases are coming due and these will be renegotiated at lower rates. While this sounds like good news to shareholders, the current dire economic situation coupled with the Border's situation will result in a significant reduction in superstore locations. Projecting current physical retailing trends will make many current locations simply unprofitable even at significantly lower rents. We may be witnessing the demise of the suburban book superstore and suburban consumers may be indifferent. Online retailing is going to be the huge winner across all retail segments, but particularly in book retailing.

We have a perfect storm: An excess of media options reducing the time traditionally spent reading books, the economic slow down reducing all spending, the increasing acceptance and comfort of online retailing to virtually all consumers and the advent of the online superstore which encourages a cost-conscious basket approach to consumption. Increasingly all of us - not just those of us who have been checking our bank account and buying airline tickets online for years - will be buying everything online, at the best combination of pricing and free delivery, and all without dealing with the expense and hassle of traveling.

Multi-store malls will continue to live on for many years. In contrast, we will see many large, empty retailing boxes punctuating the sides of our traditional highway shopping aisles. Already this year, the big-box retailing environment is dire with a range of store liquidations and bankruptcies from Linen & Things to Circuit City. In years past, other retailers would fill these spaces with their new formats or new concepts, but those days are gone never to return. Retailing innovation - to the extent that it exists - is emerging on the web but not in physical retailing. The big losers will be the real estate owners who won't be able to find tenants (there are only so many ice rinks or roller rinks you can have in any one community).

Superstore physical book retailing, particularly its suburban version, may be a casualty. For a strong retailer like Barnes & Noble there will be plenty of time to adapt but others will fail. The current recession is going to change many things and some business segments just won't recover as consumers transfer all their shopping online. The economic crisis will push retailing over an imaginary Rubicon: More physical stores are unprofitable so they close, which reduces consumer access and pushes the consumer online. The cycle repeats itself and big-box book retailing will be no different. Ironically, big-box retailing made shopping convenient for suburbanites and retailers chased the consumer diaspora with vigor. The convenience that suburbanites sought is now the demise of the same retailers that promoted convenience. Physical can't compete with virtual. Tant pis.

But perhaps it's not all bad news. Mitigation may be driven by a population migration back into city centers which is most apparent in big cities like NYC, Washington and even Los Angeles. Couple this urban population growth with the daily office crowd and we have the re-genesis of an old phenomena: Main street shopping, which doesn't attempt to compete with the webstores abundance but serves deeper consumer needs. Retailing on a small scale operating with smaller inventories that turn rapidly, defined as 'scarcity' merchandising. The notion that if you don't buy it now it will be gone - which is the philosophy of The Gap, The Limited and some others.

Books are sold exceptionally well online but their merchandising could adapt to smaller format retailing. Urban book retailing will continue to be dominated by chains; costs will simply be prohibitive for independents to support sophisticated merchandising and supply chains that will be needed in the type of retail environment foreseen. Regardless, store size will shrink as the inventory mix skews to movie style 'openings' and 'events' designed to bring in a volume of buyers in a short time frame. A publisher once told me that if he owned a store he would only stock 40 best sellers. That concept (or a variation) will become the next phase in physical book retailing. Will it be the last hurrah?


Anonymous said...

This is a very useful and prescient piece. I have been thinking for some time that we're bound to see a rollback in retail space in America because of online purchasing. I hadn't tied it together with B&N's news about where their rents would be going.

Since B&N really has the only sophisticated supply chain in book retailing, one would expect that the difficult environment might favor them competitively. That is, they might pick up more from the demise of others than they lose through the overall attrition. At least for a while.

But shelf space available for books (and for a lot of other things) is about to start declining. Inexorably. And for a very long time.

Michael Hickins said...

Michael, could independent booksellers, with a financial assist from publishers, invest in technology allowing them to print and bind on-demand books in the back of their stores? Could this be a way for them to serve both the "deeper needs" you mention as well as more casual shoppers? I think many customers would prefer to patronize a locally-owned business, enough things being equal.

Michael Herrmann said...

This site certainly is the one to go to for apocalyptic predictions!

Did Borders succumb to the inevitable, or was it mismanaged? If it's more the latter, then your case isn't as strong.

This certainly is what recessions are for--to punish companies that have expanded too aggressively or too unintelligently--but that does not mean that they will not spring back like kudzu when the economy revives.

In the specific case of the book industry, I believe that Borders's place will be taken by a resurgence in independent stores. Of course I am biased. But independents have weathered a lot of recessions and have proved impossible to kill, unlike Borders.

For a good model of what the future might hold, check out the Northshire Bookshop in Vermont. They are large enough at 10,000 square feet to house a good number of titles--they have a state of the art cafe--and, most importantly for readers of this site, they are beta testing a POD machine which makes all the "long tail" kinds of titles available immediately.

The future may be in the past, in smartly run, technologically sophisticated local operations.

dianawudavid said...

Actually HP aggregates and allows you to print RSS feeds from a variety of media and HSBC in Heathrow is sponsoring a "book bar" where you can buy pieces to go in to a travel book they bind while you wait. Michael Hickins in not far off.