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Big Box Blues


Mom and pop make a comeback.


Over the last couple of decades, the giants of the Big Box Retail universe -- Target (TGT), Wal-Mart (WMT), Costco (COST), Barnes & Noble (BKS), Staples (SPLS), Lowe's (LOW), Home Depot (HD) -- have been on an expansion binge. Driven by the low cost of fuel, land and capital, these firms have manufactured "consumption corridors" alongside tilt-up housing communities on the ever-expanding outskirts of suburban sprawl.

We have arrived, however, at a moment when macroeconomics begins to collide with consumer psychologies. A crossroads, in the evolution of retail, where the total cost of consumption begins to weigh heavily on the purchasing patterns of millions of Americans. With gas prices, environmental consciousness and home listings all shooting skyward, collective consumer psyche finds itself wrestling with a much more elaborate set of tradeoffs:

Do I fill up the tank again to get to Target, or just stomach the extra dollar for a gallon of milk at the corner store? When the GAP's (GPS) selling two T-shirts for $10, can we really afford the $30 sustainably-grown organic cotton T-shirt? Which of the following choices is greenest: landscaping the lawn at Lowe's, buying a ream of paper at Staples or purchasing a package of Pampers at Costco?

What we're witnessing, in slow motion, is the inescapable and damning occasion when the design of a business no longer syncs up with the shifting sentiments of the marketplace. Every chain under the sun may now be doing away with plastic bags, but that's a far cry from the type of transcendent behavior that increasingly enlightened customers look for. Digging beneath the surface of the "reusable shopping bag," we discover the early signs of an even deeper movement afoot. Here are four factors that are actively shaping the future shopping experience:

Quality resides in the story behind the product
While the REI private label shorts are functionally equivalent to the Patagonia brand, Patagonia's history of environmental enhancement makes the 20% price premium an easy choice. An authentic legacy is key to this type of branding narrative.

Extreme transparency means naked supply chains
This is most evident in the world of food, where customers want to know how and where the produce was grown. Global supply chains and product packaging will have to be refashioned to provide this information.

Small local batches are of greater value than large global lots
Even with today's budgetary pressures, consumers are just as interested in making a connection with the local community as they are in saving time and money. Small batch craftsmanship, as evidenced by the increasing number of farmer's markets, micro-breweries and the like, will continue it's post-modern revival.

Leading adopters will migrate to a proliferation of alternative offerings
As you stroll through the up-and-coming neighborhoods of cities and towns from coast to coast, you'll quickly notice that independent bookstores, independent coffee roasters and urban markets are opening at a surprising rate. As real estate values have declined and transportation costs have soared, a cadre of wily entrepreneurs has stepped into the void, opening all manner of innovative options that give customers yet another reason to not hop in the car.

Unlike the newspaper industry, wrecked by the Internet, don't expect Big Box Retail to be undone in one fail swoop. No, we are on the front end of a socioeconomic cycle that will take some time to unravel, progressing through a series of fits and starts, setbacks and spurts. An advance where customers are authoring a new value equation, making purchasing decisions based on convenience, cost and quality - and sustainability and transparency.

This morning, in a quiet corner office in Minneapolis, Atlanta or Los Angeles, a hyper-visionary and prescient executive -- after completing the earnings call -- is translating these trends into a breakthrough retail concept worthy of the jagged age in which we live. Putting pencil to paper and reconstituting the only retail environment many of us have ever known.

Brick by brick and bolt by bolt, unbundling the business model they've worked so hard to perfect: a 1,000-square-foot Target kiosk, sprinkled across cities, that provides a tightly-curated selection of the 100 most popular staples; a neighborhood Home Depot that specializes in handyman services for small projects; and a modern office laboratory that shows knowledge workers of tomorrow how to elevate productivity.

Essentially, creating change ahead of the curve and putting power in the hands of the ultimate arbiter, the consumer. Simply because that's what extraordinary leaders do.

No positions in stocks mentioned.

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