Shopko’s Big on Small

Shopko intensifies its small-format store strategy
Posted on April 13, 2016 by Allison Zisko

By Allison Zisko

ShopkoFurniture is a strong category for Shopko, and it believes it can also work in a smaller format.
Shopko is rapidly expanding its Shopko Hometown format, which caters to a rural niche that CEO Peter McMahon feels is significantly underserved.

The Green Bay, Wis.-based Shopko has opened 12 new Shopko Hometown stores so far this year, including 10 last month, and is on track to open at least 30 and as many as 50 of the small-format stores in 2016. It currently operates in 26 states and McMahon believes there’s room for at least 1,000 Hometowns nationwide.

The Shopko Hometown retail format was developed over the past five years to augment Shopko’s larger store model and focus on serving the needs of smaller rural communities— where customers previously had to travel several miles to get to the nearest retailer— in stores that range from 15,000 to 35,000 square feet.

ShopkoStorage, right, and kitchen textiles also present opportunities.
Many retailers, including Walmart and Target, are experimenting with small-format stores in big cities. Shopko is in trial with urban markets as well, McMahon said, but its focus solidly remains on rural areas.

“The rural population is grossly underserved by retailers, so we’re eager to bring Shopko Hometown to more communities,” McMahon said in a statement announcing openings in March. “We’ve received overwhelmingly positive feedback from customers in our current hometown communities who tell us they appreciate the improved shopping experience and access to a broader, differentiated selection of merchandise, including products and brands previously not available in their community.”

The typical Shopko Hometown customer is a “simplicity seeker,” and many of them have chosen to live far away from the hustle and hassle of large urban areas, McMahon told HFN. The typical Shopko Hometown customer is also family-oriented, strongly connected to the local community, practical, genuine—and “likes good brands.”

PeterMcMahon“I see opportunity for at least 1,000 Hometowns.” Peter McMahon, CEO
For that customer, Shopko Hometown offers a good-better-best assortment that McMahon said reflects the range of its 80,000-to-100,000-square-foot Shopko stores. It is a pared down assortment of about 50,000 SKUs, compared to the 95,000 SKUs carried in a typical Shopko big box store. It aims to offer top brands at competitive price points, he said, supplemented with a value concept. Its good tier includes opening-price-point items, its better tier offers its private label brands—including its Studio A label that is strong in home furnishings—and its best tier is populated with home brands such as T-fal, Paula Deen, Rachael Ray, Shark and Ninja. In apparel, it carries brands like Nike, Addidas and Puma.

Furniture is a strong category in Shopko’s big-box format and it is looking at ways to bring that category to its smaller box. “We’re able to show the range we have,” McMahon said. The retailer’s omnichannel presence has also boosted its ability to offer consumers anything they want, anywhere. “You can shop the whole Shopko store and have it brought to you,” McMahon said.

Home Category Opportunities
Housewares and tabletop present great opportunity businesses for Shopko Hometown, according to McMahon. In those categories it delivers newness alongside an established stable of brands including Calphalon, Rubbermaid and Oneida, rather than an in-and-out business, and Shopko’s buyers spend a lot of time at trade shows in search of innovation. “We bring these brands to small towns,” McMahon said. “That’s what really resonates with our customers.”

Shopko Hometown prides itself on being a community store. The Shopko Foundation looks for ways to benefit local organizations such as food pantries, community agencies and schools. “We target the funds we have to the community we serve,” rather than give to large, national charitable organizations, McMahon said. Its mantra is to make life easier and better for its customers and its employees. Shopko builds a bridge with its community and the community in turn considers Shopko part of the community.

Shopko’s roots are in pharmacies and that remains a big part of its business. Its health and wellness services, which also include optical care centers, ties into its overall theme of living well—buying healthy foods, getting proper medication, getting your eyes tested, and buying the products that support good health. That goal corresponds to the current trend in housewares for personal health and wellness. “We’re not only a place for home and brands but also [a place] to look after your health and wellness as well and live life better,” McMahon said.

“When we occupy a small town [competitors] find it hard to trade against us,” he later said.

In its consumables business Shopko Hometown competes against dollar stores, and in home furnishings against Ace Hardware as well as fashion and apparel boutiques and independents. It acquired several Alco stores when that discount chain went out of business in the fall of 2014 and doubled sales at those stores, according to McMahon. It recently entered the Texas market and operates 12 stores there. “They love us in Texas. We’re trading very well there.”

Shopko, which was founded in 1962, became publicly held in 1991 and then returned to private ownership in 2005 when it was acquired by an affiliate of private investment firm Sun Capital Partners. It merged with Pamida in 2012 and still owns several Pamida locations. It also scouts out new real estate. “As opportunities come up for us to acquire or purchase stores, we will,” McMahon said.

Its growth strategy for 2016 is to open at least 30 stores in rural neighborhoods. Last year it had a goal of 30 but wound up opening 53. McMahon is optimistic. “I think we can go as high as 50 this year,” he said, adding enthusiastically, “I see opportunity for at least 1,000 Hometowns.”

 

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