Retailers bet big on small stores to battle e-comm, q-comm surge

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Retailers are reducing store sizes to be more accessible to consumers, who increasingly prefer ordering online over visiting shopping centres, thanks to the rise of e-commerce and quick-commerce. A few domestic and foreign retailers have also said they are pivoting towards smaller, more focussed formats that emphasise premium products and an enhanced customer experience.

This trend mirrors developments seen in the United States, where large retailers like  Macy's, Target, and Ikea started experimenting with smaller format stores to be closer to consumers. In India, retail chains such as  Shoppers Stop, Decathlon, Spencer Retail, and Ikea are now  exploring this model.

"We'll increase our presence by opening smaller HomeStop stores and feature select products, which will support our premiumisation journey," said Kavindra Mishra, Managing Director of the country's oldest department store chain, Shoppers Stop. The retailer sells a variety of products including clothing, home decor, electronics, footwear, cosmetics, books, etc.

Earlier, Mishra had said that the retail chain had shuttered 31  stores over the last nine years as the outlets had lost critical mass, and added that the company  is seeing a shift in consumer trends in certain markets, due to which stand-alone stores sometimes fail to generate sufficient footfalls.

"Once upon a time, a department store used to be a destination, but with the rise of e-commerce and quick-commerce, this concept has become less relevant. People want things faster and are not willing to travel much, so you have to be present in many more places, which drives the need for smaller formats that are closer to the consumer," said Anand Ramanathan, Partner and Consumer Products and Retail Sector Leader, Deloitte.

The Goenka group-owned Spencer Retail is using small stores as local hubs to drive growth. It sees a "huge opportunity'' in driving same-stores sales  with smaller outlets by focussing on fresh products, leveraging a revamped supply chain and loyalty / subscription programmes.

Additionally, these small-format outlets serve as potential e-commerce fulfilment centres, integrating online and offline strategies through targeted neighbourhood activation. This approach is part of  Spencer's  broader strategy to improve same-store growth and expand their footprint in key regions. Last month, the Kolkata-based retailer entered quick commerce with its ordering app JIFFY.

Ramanathan noted that proximity, rental costs, supply chain efficiency, and market expansion are among the key reasons for such strategies.

"Smaller box stores — those under 15,000 square feet — are growing at double-digit rates, while larger outlets (over 15,000 square feet) are declining (grocery stores, for example). Consumer demand is creating a significant shift in the real estate mix that retailers are deploying for new stores," said  Bharat Mimani, Managing Director and Partner, BCG.

Earlier this month, Swedish retailer Ikea and French sports good retailer Decathlon both announced plans to boost their reach in India via smaller stories. According to media reports, Decathlon, with an annual revenue of Rs 4,000 crore, plans to invest Rs 1,000 crore over five years. According to the Financial Express, it plans to have smaller stores, between 200 and 500 square metres in size. Further, there are plans to launch stores of around 100-120 square metres, where the number of products available is limited. People can drop into these stores and buy what they want quickly.

"If you look at Decathlon, their stores used to be outside the city. But in a place like Bengaluru, for example, it's very difficult to move from one place to another given the traffic. So how do you come closer to the consumer, and also have your store support e-commerce? People expect shorter delivery times now and to fulfil that, can you get closer to the consumer?" asked Ramanathan.  As of 2024, Decathlon India had 122 stores in 19 states.

Furniture retailer Ikea has also announced similar moves, with plans to open stores with  a retail area of 30,000 to 70,000 square feet, according to media reports. IKEA's standard large-format stores in India typically sprawl over 4.6 to 5.3 lakh square feet.

"Smaller formats are here to stay, especially in metros and tier 1 cities due to high real estate costs and changing consumer expectations. However, in tier 2 cities, larger formats may still exist — especially when you want to establish your brand in a new area where you haven't been present before. So in tier 2 and beyond, it's possible you may see larger entry-level formats, but in metros, size will continue to be a key factor," added Ramanathan.