Chains Going Urban in Effort To Fight the End of Retail

View of a facade of Walmart supermarket in Mexico City, on April 26, 2012.

Photo by YURI CORTEZ/AFP/GettyImages

After decades of population decline, America’s cities have started to see growth again over the past 20 years. Over the past five years, the urban/suburban growth balance has actually shifted toward rough parity and with the retail sector having already oversaturated suburban shopping centers many big box stores are looking to get into big cities, often with smaller format stores. You can see, however, that there are some pretty fundamental reasons why the big box retail chain and the suburban shopping center have grown up together.

Here’s Joseph Magnacca from Walgreen’s:

Over all, Mr. Magnacca said, the only standard element of running city retail is that nothing is standard.“No footprint is exactly the same and no product mix is exactly the same,” he said. “There is no one best solution.”

That lack of standardization is a real business model challenge. One of the main advantages to running a bunch of stores is that when you identify best practices you can spread them to scale quickly, learning faster and operating more productively than smaller outlets. If the business space is fragmented, this doesn’t really work. So this is kind of the equivalent of a country’s farmers taking increasingly marginal land into cultivation as the only way to increase output. There very much are growth opportunities in urban America (they’re building an urban format mixed use Wal-Mart near my building) but they’re not the low-hanging fruit.

Meanwhile, the underlying issue continues to be secular decline in the demand for brick-and-mortar retail. Amazon is getting better and faster at delivery. The cohort of people born before 1948 doesn’t use the internet nearly as much as the rest of the population, but their share of the population is shrinking. American smartphone penetration just crossed 50 percent this spring and “dumb” phones may not be on the market much longer.