Feeling the Pinch

Last week, I filled up my car for $3.85 a gallon, then raced home to get my other car in hopes that this bargain price wouldn’t rise before I got back. A month earlier, I’d cried bloody murder when a gallon of gas surpassed $3.50. Who knows where it will be by the time you read this column in July?

The bad news keeps tumbling in. Whether we’re in a formal recession or not, consumers are worried about their jobs, worried about their mortgages, worried about how much it will cost to back their cars out of the garage. They’re tightening their belts and shopping less.

As consumers tighten their belts, so do retailers. Home Depot, Starbucks, Foot Locker, Ann Taylor, Charming Shoppes, Kohl’s, Penney’s, Dillard’s, Wal-Mart and others have announced plans to close stores and/or cut back on future expansion plans. The International Council of Shopping Centers has predicted 5770 store closings in 2008 – that’s 25 percent more than in 2007.

If everything is cyclical, we’re on the other side of a cycle that peaked a decade ago, when retailers were building like crazy. That gave rise to another worry: the increase in retail square footage per capita, which had more than quadrupled in two decades. By 2000, there were an estimated 20 square feet of retail space for each person in the U.S. Analysts were calling it “overstoring.”

In those days, it wasn’t uncommon to see Gap building one of its new stores just a few blocks from one of its old ones. There was a Starbucks on nearly every corner. Wal-Mart scoffed at the idea that each new, humongous superstore it built might cannibalize the business of one of its existing, smaller stores nearby, and kept building. Target spent heavily to try keeping up with Wal-Mart. Every fashion brand wanted its own space on Madison Avenue.

The complaint at the time was that all stores looked alike, that you couldn’t tell a Lowe’s from a Home Depot, a Gap from a Guess. Creative differentiation became the mantra, and that put the ball on the tee of designers, consultants, suppliers and vendors – the VMSD nation. It was a golden time for innovation.

Now is not a golden time for anyone, except perhaps bankruptcy lawyers. But maybe it’s an opportune time. Steve Wiesner, director of the investment banking firm Lincoln Intl., has said retailers ought not to be pulling in their oars right now but rather to be rowing harder, finding new and better ways to distinguish themselves. As the term “overstoring” again enters the conversation, the retailers that want to survive will need out-of-the-box thinking. The box they’ll want out of, in this case, might be a coffin.