365 Whole Foods, other smaller format big-name retailers expanding in urban areas

It’s not just your eyes. Familiar supermarket and retail chains are getting smaller — or rather, offering smaller versions of themselves.

Company officials say the trend is prompted by people moving to denser neighborhoods where space and time is at a premium.

From value-oriented names such as Wal-Mart and Target to the more upscale Whole Foods Markets, companies are looking to squeeze into new spaces.

Whole Foods calls its version 365 by Whole Foods Market, which will sell a more “curated product mix” — that’s company-speak — including its long-standing 365 by Whole Foods private label brand of products.

A key goal, according to the company, is to expand the brand to more people and new communities.

“Whole Foods has provided a great experience for many years, and I think we’ll be able to do that in a way that will appeal to more people … and allow us to bring fresh, healthy food to communities that we wouldn’t have been able to with a (regular) Whole Foods store,” said 365 by Whole Foods Market President Jeff Tuas in a company-produced YouTube video describing the effort.

Whole Foods will open three of these new stores in the West this year, the first in Silver Lake and two others in Washington and Oregon. Next year, the format will come to Upland, Santa Monica and Losu2009Alamitos.

As many as 10 of the stores are expected to open nationwide in 2017, according to a company statement.

They may be smaller — around 30,000u2009square feet — but make no mistake: They’re still a Whole Foods.

“We’re not looking at a discount model,” Tuas said. “We are not looking at a dumb-downed version of Whole Foods because we’re never going to sacrifice our quality standards ever.”

Company spokeswoman Janette Rizk said 365 will feature a “thoughtful store design and informative signage that streamlines the customer experience in shopping for healthful foods.

Retail experts say big-name retailers are just following a population on the move as people gravitate toward areas with limited space. The shift represents a new market for them to explore.

Smaller is smarter

In addition, there are some real cost savings for the retailers, said commercial real estate expert Brad Umansky, CEO of the Rancho Cucamonga-based Progressive Real Estate Partners. Smaller-format stores offer retailers the chance to be smarter about their inventory.

“If you know that 80u2009percent of your revenue comes from 60u2009percent of the items you sell, then maybe you only need to stock for that 60u2009percent,” Umansky said. “So it’s about trying to stock those items that tu more quickly, recognizing that items that don’t sell as quickly can be bought at the store or online … so stores are becoming more specialized.”

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A more tailored product offering, according to Jay Prag, professor of economics and finance at the Drucker School of Management at Claremont Graduate University, may serve some retailers better than in a larger-store format.

“Inventory is the biggest expense day-to-day for a large grocery store, and if you don’t have a tremendous amount of foot traffic, if people are not coming in as often as they used to, that’s a complete waste of money,” Prag said.

Going urban, hipster

Much of the smaller-store trend has to do with increasing urbanization of the population, according to Craig Rosenblum, a retail expert and partner with Illinois-based consumer goods and retail consulting firm Willard Bishop.

“Folks are moving to urban centers, and more of this is wanting to live and eat within walking distance of everything,” Rosenblum said. “The millenials are more into it, and the elderly are more into it.”

Rosenblum said the first 365 by Whole Foods Market stores to open later this year appear to remain in neighborhoods where the household income is solidly middle class.

“They’re really looking at the kind of neighborhoods that are more hip and cool, so they’re not going after the impoverished,” Rosenblum said. “They’re not going after the under-$30,000u2009households. They’re going after the $50,000-and-up range and in areas where people are cooler, and there are hipsters.”

Not just for food

Large big box retailers such as Wal-Mart and Target have already planted smaller stores as a way of expanding into urban areas where space to build a traditional store is limited or non-existent.

Target calls its mini-stores the “flex-format” and locates them in urban areas, unlike its traditional stores, which are more often found in the suburbs, according to the company.

“Target recognized that more and more people are starting to move into the cores of large cities and in 2012 began to expand into these more densely populated city centers,” said Target spokesman Matthew Dentone in an email. “These stores have allowed Target to leverage our strength in flexible store design to fit a Target store into a less traditional, smaller space to serve urban guests.”

Can it be too small?

The rush to downsize isn’t a sure thing. In January, Wal-Mart aounced it is shuttering all 102 of its smallest stores, which average 13,000u2009square feet and are known as Wal-Mart Express. Instead, the company will focus on growing its e-commerce business, strengthening its supercenters and optimizing its midsized neighborhood markets.

At about 38,000u2009square feet, Wal-Mart’s neighborhood market concept is smaller than a traditional Wal-Mart — although bigger than a Wal-Mart Express — and emphasizes grocery products, according to the company.

“In general, customers are shopping in a variety of ways and our goal is to provide a seamless shopping experience so they can shop whenever, wherever and how they want,” said Delia Garcia, a spokeswoman for Wal-Mart.

“The neighborhood market concept is just another way to serve our customers better to provide a more convenient grocery shopping experience and it’s a format that continues to grow,” she added.

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