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Economy

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Bloomberg News
Best Buy and other big box retailers are planning to open smaller stores to adjust to changing shopping habits.

Big-box blues: Best Buy downsizing stores

When Best Buy said Thursday 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 and Target 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: 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.

Big-box retail was born in 1962. That’s the year that Wal- Mart, Kmart 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 and consumer goods, said John Lupo, a retired Wal-Mart executive who 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.

Other forces are conspiring against the big-box model.

Baby boomers no longer have kids at home and don’t need to stock up on food and packaged goods. Their kids are marrying later and delaying having their own children, meaning fewer are buying houses that need to be updated and furnished.

“Right now you have a trough in the need for big-box retail,” said Bryan Gildenberg, an analyst with the research firm Kantar Retail in Cambridge, Mass.

Hence the rush to open smaller stores. By 2016, Richfield, Minn.-based Best Buy plans to have as many as 800 Mobile Stores, up from 305 now.

It’s part of CEO Brian Dunn’s plan to generate revenue from warranties, accessories and connections between phones, tablets and other electronics.

The increasing emphasis on smaller stores still leaves room for big stores, Dunn said.

“We see those stores as an important part of a network in conjunction with our small-box stores, our online capabilities and our on-phone capabilities that allow customers to reach us anytime, anywhere, anyhow they choose,” he said.

“While I don’t see this as a decline of the big boxes, the multi-channel approach that we are taking will require less square footage.”

Wal-Mart, which is based in Bentonville, Ark., is also sticking with big stores. While the company aims to add at least three times as many Neighborhood Markets as in 2011, it plans to add up to 150 supercenters, compared with 122 last year.

“The supercenter is still what works best for us,” said Deisha Galberth Barnett, a Wal-Mart spokeswoman.

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