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The End of the Big-Box Era

Poor customer service and ill-informed employees have driven consumers away

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As (barely) indicated by CEO Kevin Marshall in a recent conference call, three-quarters of Kohl’s new stores opened last year were considered small stores, averaging only 64,000 square feet, tiny by historical comparison. Nine out of 10 Kohl’s stores planned for a 2012 open are also going to be small, producing less revenue than their larger counterparts but perhaps generating more profit on a per-square-foot basis.

Considering that Staples (NASDAQ:SPLS), Office Depot and Cabela’s are also expanding via small-box shops, there’s clearly something to this.

The problem is, it’s easier said than done, and most of these monster-sized stores won’t be able to make the transition for a variety of reasons. The biggest of these reasons is that being a big-box retailer is all some of these companies know how to do.

A close second problem is that a smaller store doesn’t automatically make for a better store. It just lowers overhead.

Another Solution

One thing to keep in mind as Kohl’s, Best Buy, Office Depot, and even Wal-Mart migrate toward less square footage is that it doesn’t make employees care more or make them more knowledgeable about the company’s products.

Clearly this keeps Best Buy, where electronics know-how makes for a more potent sales associate, in the line of fire, but even the likes of Wal-Mart and Office Depot are being tripped up by rude, disrespectful, unqualified, or untrained employees. It’s a growing and chronic problem that may be more detrimental than top management cares to believe.

Let’s face it: While Wal-Mart may have undermined a whole slew of mom-and-pop stores, there’s a reason a bunch of them are still around — and it’s not their merchandise selection or prices. There’s a reason a general dislike for big-box retailers has turned into outright revenue-crimping activism.

More consumers are making a point of avoiding large chain stores after suffering through years of poor and impersonal customer service.

  • Etsy (etsy.com), a website that lets users sell their handmade and homemade personalized crafts, reported its strongest sales day ever on 2011′s Cyber Monday.
  • Small Business Saturday: In late November, 2011, communities across the nation picked a Saturday to make a point of specifically shopping at their local merchants and avoiding the faceless big-box retailers.

One day doesn’t make a dent, but it does make a point. Even more interesting is how consumers made a point of doing something about poor customer service and didn’t act solely on price. If it’s a glimpse into the mindset of the average shopper (and it is), then the big-box stores that have survived so far should take note: Shoppers truly are fed up. It’s not just an idle threat anymore, as declining sales should confirm.

Reality Check

But wouldn’t a shrinking number of competitors ultimately be a good thing for the survivors? On the surface, yes. In reality, no — not when the reason so many stores have closed remains in force.

Most major retailers still don’t get that just opening their doors isn’t enough anymore. Consumers want to be dazzled by something they can’t get via their smartphone. Store employees can’t be insulting or annoying anymore — everyone knows those extended warranties are worthless. Retailers can’t count on being a price leader any longer, either, since everybody price-matches. Sadly, most of these big-box names will probably never get it. As such, they can make for poor investments, struggling to just survive. Many of them won’t even do that.

It really is a new era in consumerism.

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Article printed from InvestorPlace Media, http://investorplace.com/2012/01/the-end-of-the-big-box-era/.

©2014 InvestorPlace Media, LLC

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