The era in which retailers scaled their expansion through a single, standardised large-format store is visibly coming to an end. Anyone reviewing the expansion requirements of active retailers today will find the classic 800-square-metre brief for a prime pitch less and less often — and increasingly differentiated format families instead: micro-stores for dense urban cores, pop-up spaces for market testing, hybrid showroom concepts with collection and service functions. The international term for this has become established: right-sizing. It does not mean shrinking across the board, but tailoring space, format and lease precisely to the role a location plays within a brand’s distribution network. For owners of retail real estate, this is not a footnote but a structural shift in space demand — with direct consequences for unit configuration, leasing strategy and contract design.
Key takeaways
- Right-sizing does not mean shrinking across the board, but tailoring space, format and lease precisely to the strategic role of a location.
- Space demand is shifting towards micro-stores (often 50–200 sqm), pop-ups and hybrid showroom formats — including in sectors such as furniture retail that were long synonymous with big-box sites.
- US landlords such as Simon, Macerich and Kimco demonstrate with shared-retail and pop-up platforms how vacancy can be converted into footfall and a tenant pipeline.
- For owners, four levers are decisive: divisible unit layouts, flexible leases, professionally managed short-term letting and a complemented use mix.
The end of one-size-fits-all retail
For decades, store expansion followed the copy-paste principle: a proven flagship format was duplicated city by city, with near-identical space requirements, assortment and fit-out. This model is now under pressure from two directions. First, e-commerce has changed the function of physical space — not every store needs to carry the full assortment when availability can be organised digitally. Second, consumers have become more heterogeneous: more time-sensitive, more experience-driven, less willing to make a detour for an interchangeable standard format.
The new logic can be summarised succinctly: the benchmark is no longer “bigger equals better” but “smarter, closer, more adaptable”. Flexible formats are explicitly not downsized stopgaps, but adaptive building blocks within a larger, dynamic store network. International retailers such as Walmart, IKEA and Sephora have demonstrated that a smaller footprint does not mean smaller impact — what matters is whether the format fits the micro-location and the strategic function of the site.
For location assessment, this means the decisive metric is no longer floor area or isolated sales density alone, but a site’s adaptability to changing roles — sales, advice, collection, brand staging.
The new building blocks: micro-stores, pop-ups, hybrid formats
Three format types are shaping the current development most visibly.
Micro-stores allow brands to enter dense urban locations where large units are either unavailable or uneconomical. Footfall is abundant; the assortment is curated rather than comprehensive. Relevant for landlords: this demand frequently targets units between 50 and 200 square metres — a segment that is comparatively scarce in many European city centres, because the building stock was configured for larger layouts.
Pop-up stores serve as market tests, product-launch stages and footfall drivers — without long-term lease commitments. What was considered a PR gimmick a few years ago has become a permanent component of expansion strategies. Notably, US landlords responded early and professionally: Simon piloted “The Edit”, a shared-retail concept in which several brands use one space with shared costs and infrastructure — co-working logic applied to retail. Macerich established its own platform for start-up brands with “Pop Up EXP”; Westfield and Kimco Realty followed with comparable programmes. The effect for the owner: vacancy is filled, the asset gains experiential appeal, and rotating concepts give visitors a reason to return.
Hybrid experience formats merge physical and digital commerce: they operate as showrooms and simultaneously as fulfilment points for online orders, click & collect and returns. Eyewear brand Warby Parker has shown how compact spaces can combine brand experience and logistics functions — deliberately blurring the line between clicks and bricks.
Digital marketplace platforms for short-term retail space have lowered the entry barriers further: units can be booked like hotel rooms, with costs broken down per day. Average start-up costs in this model run to around USD 2,000 — versus a multiple of that figure for a conventional lease. For smaller and digitally native brands, physical retail becomes accessible in the first place.
A look at Italy: when even furniture retail moves downtown
How profound the format shift is can be seen in a sector traditionally associated with large peripheral sites: furniture retail. According to recent market analyses, the Italian home furniture market exceeds EUR 19 billion, making it the fourth-largest in Europe. What is remarkable is less the market size than the structural shift: the expansion plans of the major specialised chains — including IKEA and Mondo Convenienza — are explicitly oriented towards smaller store formats and locations closer to urban centres. The chains are moving closer to the end consumer both spatially and in their service offer (planning, design, order management).
When even space-intensive categories such as furniture develop compact urban formats, that is a strong signal for all city-centre locations: the demand base for well-configured, mid-sized urban units is broadening to include sectors that simply did not exist there before. Similar movements have long been visible in other categories — from compact DIY formats to city studios of kitchen brands and showrooms of mattress and e-mobility players. The common denominator: advice-intensive products seek the footfall of the city centre, while storage and logistics are relocated elsewhere.
What this means for owners and landlords
The existing building stock in most European markets is only partially prepared for this shift in demand. High-street buildings and shopping centres alike were developed over decades around large-format anchor tenants. The number of shopping centres in Germany, for instance, has stagnated at just over 500 for years; growth happens within the existing stock, through conversion and repositioning, not through new development. This is precisely where the task lies.
Four fields of action stand out:
Subdivision instead of one-to-one re-letting. Large units that no single successor tenant can absorb can be split into two to four smaller units with separate entrances. This requires investment in access and building services, but opens up a considerably broader tenant universe and reduces concentration risk within the asset.
Lease flexibility as a letting argument. As recent analyses of store valuation in an omnichannel context show, future-proof locations require leases that allow functional role changes, technical extensions and altered space uses — without every adjustment triggering a renegotiation. Owners who offer such headroom gain an advantage with precisely those tenants who intend to invest for the long term.
A pop-up strategy instead of vacancy management. The US examples show that curated short-term letting is more than a stopgap: it tests concepts on site, generates footfall and builds a pipeline of potential long-term tenants. For European city centres with structural vacancy — and for municipalities funding interim-use programmes — it is a proven instrument.
Mixed-use thinking at asset level. Experience, food-and-beverage and service uses are not space fillers but footfall anchors that channel spending power towards the retail units in the building. Complementing the use mix has become one of the most frequently implemented measures in the repositioning of retail assets.
The challenges: no sure-fire success
Right-sizing has a flip side that tends to be glossed over in the enthusiasm for flexible formats. Three points deserve sober consideration.
First, logistics complexity: keeping many small and partly temporary locations consistently stocked demands precise demand forecasting and responsive replenishment systems — a considerable operational burden on the tenant side that feeds directly into site selection. Assets with good delivery access and optional storage space gain value.
Second, brand consistency: differing formats carry the risk of an inconsistent brand experience. Retailers that master format diversity therefore invest disproportionately in design and management — and set correspondingly higher requirements for the quality of the space.
Third, the cost equation: flexible formats reduce long-term lease liabilities but can increase operating costs per square metre, especially in sought-after urban zones. For landlords this means: willingness to pay per square metre can be higher for compact formats than for large units — provided location and configuration are right.
Conclusion: space strategy follows format strategy
Right-sizing is not a fashion but the logical consequence of a retail industry that has to re-justify its physical presence. Demand is shifting from the large standard unit to the tailored, adaptable one — and from rigid leases to models that allow adjustment. Owners who prepare their assets accordingly — through divisible layouts, flexible lease architecture and active format curation — considerably enlarge their tenant universe. Those who wait for the return of the classic large-format tenant are competing for a shrinking segment. The high street of the coming years will be more granular, more changeable and more experience-driven. That is not a loss of substance but an opportunity for value creation — for the assets that can adapt.
Frequently asked questions about retail right-sizing
What does right-sizing mean in retail?
Right-sizing describes the adjustment of store space to the actual strategic function of a location — instead of standardised large formats, tailored formats emerge, such as micro-stores, pop-ups or hybrid showrooms with collection and service functions.
Why are retailers increasingly opting for smaller store formats?
Smaller formats provide access to dense, high-footfall urban locations, lower investment and lease risks, and integrate more easily into omnichannel strategies in which the store also serves as a showroom and pick-up point.
What does this mean for owners of retail real estate?
Demand is shifting towards smaller, well-configured units and flexible lease models. Owners benefit if they make large units divisible, organise short-term and pop-up letting professionally, and offer leases with headroom for changing uses.
Are pop-up stores merely a stopgap for vacancy?
No. Platforms operated by major US landlords such as Simon, Macerich and Kimco show that curated short-term letting generates footfall on a lasting basis, tests concepts on site and builds a pipeline for long-term leases.
Is subdividing a large unit economically worthwhile?
In many cases, yes: subdivision requires investment in access, building services and fire safety, but it opens up a broader tenant universe, reduces the default risk of a single tenant and can achieve a higher aggregate rent per square metre than re-letting to one large occupier. What matters is a realistic calculation of conversion costs against the achievable rental uplift and the shorter marketing period of the smaller units.
