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Baby Gap and Gap Body stores in Dallas. In malls where Gap has multiple store formats, the retailer could consolidate them into a single store.

Retailers have a new strategy to increase profits: shrink to fit.

For two decades, mall-based apparel companies saturated the market, aggressively adding more stores and building them bigger. Chastened by the recession, however, retailers including Gap Inc. and AnnTaylor Stores Corp. are poring over their holdings, looking for stores they can cut down to size.

The effort marks a new phase in the industry's response to the weak economy. After consumers snapped shut their wallets in the fall of 2008, sending sales plummeting, retailers laid off waves of employees and slashed inventory.

Now, many of them see re-evaluating their real estate, one of retailing's biggest expenses, as a critical step on their path to recovery.

"During the '90s era, everybody wanted a bigger box," says Kay Krill, AnnTaylor's chief executive. "Now, all of us are trying to get out of those bigger boxes."

Ms. Krill says she is shrinking square footage at AnnTaylor's new namesake stores by a third. Her reasoning: "I like productivity."

Average sales per square foot at American malls, a closely watched measure of retailers' productivity, peaked in 2007 at $454, according to research firm Green Street Advisors Inc. By the end of 2009, the average had fallen to $401, wiping out five years of progress.

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Source: The Wall Street Journal