Big-box stores squeeze into Big Apple

By Theresa Howard
USA Today
October 18, 2004

NEW YORK — Big retailers known more for giant stores in suburbs are resizing stores, reformatting layouts and remixing merchandise to make it big in the Big Apple.

Home Depot recently joined Toys R Us, Kmart, Best Buy, and The Container Store here in exploring ways to adapt their formulas to an urban environment.

What's the appeal? High pedestrian traffic and a potential new sales growth area have become more important as suburban areas become saturated and opportunities for
expansion there shrink.

Urban success, however, means conquering problems of tight space and high costs. But on the "if I can make it there, I'll make it anywhere" theory, as the Frank Sinatra song goes, strategies that work in dense, high-cost New York could work in other cities.

Specialty retailer The Container Store says big sales and the opportunity to apply good ideas to other stores, can offset headaches.

"It's a different universe. There are all kinds of peculiarities," says Kip Tindell, president and CEO. However, The Container Store's Sixth Avenue location, open since last November, leads the chain with sales more than double the volume of the No. 2 store.

The Home Depot has high hopes for its new Manhattan store on 23rd Street.

"We expect it be one of our highest-volume locations," says Bob Nardelli, chairman and CEO, who plans to open a second store by January on 59th Street.

The potential is high. Sales in Manhattan can hit $660 per square foot, exceeding the national average of $295 by about 125%, says retail expert Faith Hope Consolo. Retailers have "access to a vast customer base they wouldn't otherwise reach," she says. "You've got residents, office workers, and, the icing on the cake, you've got tourists."

Tight space, however, forces retailers to develop creative storage and merchandising solutions. And sales have to be high enough to offset higher real-estate costs.

Such issues have kept Target and J.C. Penney so far from opening full-time locations in favor of temporary "pop-up stores" — themed stores open for a few weeks in vacant spaces — to give their brands a presence. This month — breast cancer awareness month — a Target pop-up is selling only pink products, priced from $10 to $25, with all of the profit going to breast-cancer charities. It's the fifth time Target has opened a themed shop in Manhattan.

"The pop-up store is a way to execute a very specific initiative or cause," says John Remington, Target's vice president of marketing. And to fill a void until Target opens a permanent Manhattan address. "We're always looking for those opportunities."

Other Big Apple differences:

• Deliveries. Traffic and lack of parking make delivery a New York staple. Home Depot expects to make 600 to 1,000 deliveries a day once the second store opens. "We really tried to focus on what's unique about the market," says Nardelli, who also points to other services such as 24-hour lock service and tool rental.

At The Container Store, deliveries are 30% of sales vs. the projected 3%. Though initially unprepared for such volume, the retailer has begun to systemize delivery, particularly after seeing the sales totals for delivered orders average three times non-delivered totals.

• A selling test. Toys R Us has found that strong sales in diverse New York can be a barometer for sales potential in other locations. "We bring in products early to determine how many units to purchase in the future," says Kathleen Szymanski, vice president and general manager of Toys R Us in Times Square.

• Adapting to the environment. City and suburban needs and tastes can vary, so smart retailers adjust their mix accordingly. Among the new Home Depot's 20,000 products are more lighting, ceiling fans, furniture hardware and paint than traditional locations.

"We tried to take the best of The Home Depot and tailor it to the Manhattanite," says John Costello, executive vice president, merchandising and marketing.

Kmart was surprised to find it sells more furniture at its two Manhattan stores, open since 1996, than at other locations. "We didn't think there would be much need for furniture, but demand has proved otherwise," says spokesman Stephen Pagnani.

Among specialized Kmart offerings: milk, eggs and health and beauty aids are located near the doors, so people can make impulse purchases on their way home.

"Both stores have subway entrances, which gives you the unique opportunity to merchandise accordingly," Pagnani says.

• Marketing opportunities. Specialty retailer Hershey Foods uses its real estate to advertise the brand. Billboards for the store and Hershey's products climb 15 stories high and include 4,000 lights.

"People are drawn into the magnificent signage and branding," says Tom Hernquist, chief marketing officer. "Before you even walk in the door, you get in the mood."

• More challenges. Inventory deliveries are made nightly to Home Depot and Toys R Us locations from nearby warehouses in New Jersey because of limited storage space at stores. Also, the runs are limited to 28-foot "pup" trucks, rather than the usual 53-foot tractor-trailers. The Container Store requires two to three trucks per day vs. three to five trailers a week at other stores.

"We've been doing this for 26 years, and it's amazing that we're having to do things to accommodate the market that we never did before," Tindell says.