Target to operate 130 small-format stores by 2019; others echo small-store strategy

By

Arati Menon

Published
Jan 15, 2018

Target Corp. has reported that it will open 30 new smaller format stores in 2018. By the end of 2019, the retailer plans to have opened 130 of these stores. The new stores are scaled-back versions of the big-box Targets that operate in the suburbs, and are being rolled out chiefly in urban centers.

 
The announcement came on the heels of a cheery holiday season for the Minneapolis-based retailer with a comparable sales growth of 3.4% for the two-month holiday period against the previous year.
 
Target is reported to have employed $1 bn of last year’s profits in efforts to ramp up sales, investing in its online business, but also remodeling existing stores and focusing on building small-format stores.

Ads

According to a 2015 PwC study, the US had approximately 24 sq ft of retail space per capita, roughly five times that in the UK and Europe. But booming online sales, coupled with changing shopping habits of younger Americans who have also relocated from the suburbs to city centers, has turned the pressure on traditional retailers, and especially department stores, known for sprawling formats.

Across the country, retailers such as Walmart, Target, Macy's and Nordstrom are all experimenting with ways to condense their inventory into smaller locations.

Sears opened its first small-format concept store in May 2016 in Colorado, and has since increasingly tested out the model, also shrinking some of its full-size stores to unlock value. In December, Sears opened a department store in Northern Virginia—it was just half its usual size.

Earlier this month, the company also informed associates it will be closing 64 Kmart stores and 39 Sears stores by early April.
 
Like its peers, Kohl's has also been opening more “flexible” and “efficient” store concepts. In the last quarter of 2017, it opened four new stores, bringing the total up to 12. Even within its large-format boxes, the department store chain is creating operationally smaller, more profitable stores re-leasing unused footage to traffic-generating retailers like those that sell food.

Shares of Kohl’s last Monday rose after it announced a 6.9 percent rise in same-store sales for November and December, according to a Reuters report.
 
According to recent projections from Kantar Retail, sales at smaller-format stores are slated to grow 3.9 percent annually until 2022, outstripping 0.8 percent sales growth for big-box stores. Stores smaller than 20,000 square feet account for approximately $612 billion in annual sales, with that figure projected to grow 21 percent to $741 billion in the next five years.
 
Retail heavyweight Nordstrom is also experimenting with a new concept store format called Nordstrom Local, just 3000 sq ft instead of their average store size of upwards of 100,000 sq ft. The store carries no inventory, instead pulling merchandise from other stores and from its website, and focusing on creating a new platform for a more enjoyable customer engagement, nail spa and wine bar included.
 
Target is also redefining customer experience, along with store size. The chain is tripling the size of its existing-store remodeling program to include more than 500 “reimagined stores” between 2018 and 2019. “We’re doubling down on our stores to offer guests an elevated experience,” said Target Corp. CEO Brian Cornell.