Barnes and Noble's hardest lesson: It pays to be small

The internet continues to change the face of retailing. Aivars Lode Avantce

Barnes and Noble's hardest lesson: It pays to be small

By Nin-Hai Tseng, Writer January 29, 2013: 3:33 PM ET

Barnes & Noble has struggled to keep up with the growth of digital books, but that's not the only hurdle it faces. We just want stores to be smaller now.

FORTUNE -- Barnes & Noble expects to close up to a third of its retail book stores over the next decade, The Wall Street Journal reported Monday. The closures seem inevitable. Like other retailers, the chain has struggled in a digital world, where readers increasingly turned to e-books and online discounts. Its savior is arguably its Nook products, but sales during the holiday season fell from a year earlier amid competition from the likes of Amazon,Apple, and Google.

Indeed, it's hard to run a bookstore in the Internet age, but new technology is only part of Barnes & Noble's (BKS) problems. Its stores simply got too big in a nation that increasingly prefers things -- well, smaller.

Since the financial crisis, Americans have warmed to smaller sizes in everything from cars to homes. Even massive Wal-Mart stores (WMT) have downsized. In 1962, the world's biggest retailer opened discount stores averaging 108,000 square feet, says Ed McMahon, senior fellow at the Urban Land Institute. By 1988, Wal-Mart unveiled its Supercenters, averaging 185,000 square feet. But a decade later it opened its Neighborhood markets, which, at an average of 42,000 square feet, was more than two times smaller than its Supercenters. The chain went even smaller in 2011, with its Express stores averaging 15,000 square feet.

The big box trend coincided with what many other retailers did as America's middle class left cities for the suburbs. Between 1960 and 2000, retail space rose ten fold -- growing from 4 to 38 square feet per person, McMahon says. Retail space grew five times faster than retail sales. The financial crisis put an abrupt end to that expansion. There is now more than 1 billion square feet of vacant retail space, mostly where big box retailers once did business.

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Beyond Wal-Mart, going small is being driven by several factors - some related, others unrelated: People are getting married later; U.S. cities are growing faster than suburbs for the first time in decades; the remaining suburbs, filled with sleepy strip commercial centers, are being turned into walkable urban places.

Of course, the Internet has played a big role in shrinking physical stores as well. Just as superstores put many local stores out of business, online shopping is hurting big box retailers, McMahon says.

But some local stores that managed to stick around are now thriving again. This is perhaps most evident in the market for books. In the years where big-box chains saw bankruptcies and store closures, the number of independents have generally stayed steady during the past few years. The American Booksellers Association, a trade organization that supports independents says that since the depths of the Great Recession, it has had roughly the same number of members -- 1,524 in 2008 to 1,567 in 2012. Stores did indeed close during those years with few if any new openings, but in 2009, new ones sprung up. Last year, 40 opened nationwide.

That's far fewer than Barnes & Noble, which until 2009 opened 30 or more a year. But the fact that any indie stores are opening at a time when big-box chains are closing says a lot about being small and local.

This isn't to say independents haven't struggled. In November 2011, best-selling novelist Anne Patchett opened Parnassus Books in her hometown, Nashville, TN. When a local bookstore closed and the area lost another one due to the Borders bankruptcy, Patchett partnered with Karen Hayes, a native who left her job in sales at Random House. The closings left a void in the area that's also home to Vanderbilt University, a literary community.

Parnassus filled it, but not all communities may be lucky enough to have an Anne Patchett around.