At the site of a former grocery store on Manhattan’s Upper West Side, Lowe’s Cos. is tackling the ultimate challenge for big-box retail: going small.
In two weeks, Lowe’s will open a store on the corner of Broadway and 68th Street that’s just 30,000 square feet (2,800 square meters). The location is a quarter the size of its suburban home-improvement centers and represents the company’s first foray into Manhattan in its 69-year history. But it’s more notable as a testing ground for what could be Lowe’s next sales engine — cities.
“We strongly believe that we have a growth model here,” Richard Maltsbarger, chief development officer for Lowe’s, said on Thursday during a tour of the store.
Lowe’s is facing the same dilemma as many big-box peers: finding growth in a mature retail landscape. Back when the American suburbs were booming and filling up with shopping centers, opening gigantic stores on cheap land fueled the industry. The latest recession and the rise of online shopping brought an end to that approach. Established chains are either closing stores or significantly pulling back. Lowe’s only added two U.S. locations last year, and the store count at larger rival Home Depot Inc. was flat.
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Going Small
That’s why developing a small enough format to work in a dense city is crucial. Chains like Wal-Mart Stores Inc. and Target Corp. have already started down this path. And for good reason. Unlike many suburbs, cities are on the upswing again with consumers streaming back. They also contain some of the richest communities in the country.
“Where is the next avenue for growth? It’s urban,” said Jaime Katz, an analyst at Morningstar Inc. who tracks the retail industry.
But shrinking a big-box store is difficult. Take Home Depot, which opened smaller locations in the last decade and since closed them. The chain does have two locations in Manhattan, but they are more than three times the size of the new Lowe’s.
With a small urban store, there are logistical problems, like receiving shipments on city streets. It also can be challenging to customize the assortment. Higher rents and labor costs, meanwhile, make it harder to be profitable.
That’s why Lowe’s spent 18 months studying how Manhattanites live and their contractors and plumbers work. That research led to the new location’s design: a mashup of a neighborhood hardware store and a remodeling studio crafted for connected urbanites. It’s filled with trendy products — like Smeg retro-style refrigerators — and plenty of technology.
Vine Videos
Take the entrance, where a large touch screen shows home-improvement clips from the Vine video-sharing network. If shoppers want to see that day’s deals, a number is displayed for them to text. Customers then walk through eight small departments. Near the front is organization and storage, with moving boxes and ceiling bike racks — city essentials.
The seasonal area is dedicated to spicing up balconies. There’s a kitchen set that could fit into a tiny studio apartment, complete with an 18-inch dishwasher. And because people may be on their lunch break or in a rush after work, half a dozen employees will stand by with mobile checkout devices, providing a faster alternative to cash registers.
“We started fresh,” said Jonathan Luster, vice president of market and concept development at Mooresville, North Carolina-based Lowe’s. “We talked about what do we need to put in here, not what do we need to take out to shrink the box.”
Home-Improvement Boom
Lowe’s, founded in 1946, is by no means desperate for this to take off. The company has increased sales more than 5 percent each of the past two years, and total revenue topped $56 billion last year thanks to a rebound in housing values. With more equity in their homes, Americans are spending money to fix them up. Lowe’s stock is up about 40 percent in the past year, more than four times the gain of the Standard & Poor’s 500 Index.
But it needs to find more ways to grow. Like Home Depot, it’s investing heavily in the melding of online and physical stores — a combination the industry has dubbed “omnichannel.” These improvements are why Lowe’s decided now was the right time to go small in cities. It spent five years revamping its inventory and supply chain systems to make fulfilling purchases more flexible. It now needs less space for inventory because the chain can deliver products within a day by shipping them from nearby stores.
Design Center
This New York store — along with a second Manhattan location planned for later this year in the Chelsea neighborhood — will try to be at the vanguard of this effort. In the design center, customers can use a television-sized screen to browse online offerings and make purchases for delivery. In the lamps section, there are two dozen in stock and another 1,000 on the Lowe’s website. In appliances, an eight-foot touch screen offers interactive life-sized renderings of refrigerators not carried in the store.
Lowe’s got started on small formats in 2013 when it bought the majority of assets of Orchard Supply Hardware Stores Corp., including about 70 stores, after that chain filed for bankruptcy. These locations are about 35,000 square feet and in major cities like Los Angeles. One of the many ways Orchard shaped the Manhattan store is figuring out how to accept shipments in a smaller space. Instead of receiving goods on pallets that are unloaded by forklifts, products are packaged on wheeled carts that are rolled into the store. That cuts down on truck delivery times, thereby reducing traffic and noise.
For Maltsbarger, this store is a long time coming. The first research study he did when he started at Lowe’s 11 years ago involved city shoppers. And he’s already thinking about what’s next.
“Of course, we want to get it open, see how people respond to it, but we’re already looking ahead,” he said. “To other cities, other markets”
Date: July 31, 2015