Finally, Target Joins the Trend: Radical Downsizing
Two and a half years ago, as the company was struggling against several ominous challenges, Best Buy announced a plan to reduce its big box prototype by ten percent. This was shortly updated to increase the shrinkage of new prototype locations by an additional ten percent.
In order to speed up the process and not rely only on newly built smaller stores to advance the cause, Best Buy also announced a campaign to offer appropriate retailers space to sublet within established BB stores. This ultimately met with some, but very limited, success.
Best Buy wasn’t the first chain to think smaller in terms of store size or even to seek to sublease existing locations, especially during the recession. But its announcement was an unusual change in big box policy, a national chain going to a smaller box.
Real Estate can be pricey. Maintaining and servicing big boxes can multiply costs. Taxes aren’t always negotiable. Competing with Internet-only merchants or independents with a strong web presence, increasingly brought retailers like Best Buy to see their large store space as a financial handicap rather than as a greater opportunity to draw in paying customers.
Best Buy’s announcement to reduce its real estate burden was among the first of its kind in the current era. In fact it may have awakened other retailers and started a trend.
About the same time as Best Buy’s reduced prototype announcement, Walmart was unveiling its far more radical compact prototype, the approximately 15,000 sq. ft. Walmart Express concept. The Express format was seen as a new platform for the retailer, designed to embark in a new arena of competition- the dollar store.
Express was immediately designated ‘a work in progress’ by the company and designed for communities not seen as nearly viable to support Supercenters or even traditional Walmart big boxes. An early version in Chicago however, was located near a Supercenter. The company had hoped that its small footprint would serve to supplement the supercenter’s traffic. However the downtown Express store closed after one year, as its lease ran out.
Best Buy’s new prototype was simply expected to reduce inefficiencies and thus costs brought on by big box retailing’s real estate-based bloating. It was also expected to lead to a platform which could better compete with the growing threat of Internet-based competition by better coordinating its website operations with more efficient brick and mortar strengths.
Since Best Buy’s announcement to seek a more diminutive store model, other retailers have followed suit. Just last year, Staples, Office Depot (prior to the merger with OfficeMax) and OfficeMax (also prior to that merger) each opened prototypes far smaller than even their smallest traditional locations. In addition to a hopefully more profitable use of valuable retail real estate, these new prototypes offer greater flexibility in permitting openings in urban downtown areas within walking distances of towering office buildings and the many offices that need supplying of an ever growing assortment of products and services.
These stores make up for their small size and the obvious need to reduce on-floor product by relying on in-store, state-of-the-art video kiosks, which are geared to offer the greatest ever company product selection, linked through the corporate website. This internal, omni-channel linkup, offers customers rapid delivery of the company’s entire product assortment, with any eye to same day fulfillment.
Just over a month ago, 99 Cents Only opened a new, significantly smaller prototype in the Waco, Texas market. The new store measures around 13,000 sq. ft., which is less than two thirds of the company’s 21,000 sq. ft. average store size. As the new store promotes a perishable food department, it is expected the company is not looking to compromise its very profitable grocery offerings. It is expected that this new store size is simply a means to maintain a more efficient profitability from a platform which is driven by a tough, fixed price point.
Target for its part seemed to have acknowledged the advantages of a smaller prototype with the openings of its CityTarget model during the summer of 2012. Coming in at about 80,000 sq. ft., this Target model is designed to accommodate costly, high-end urban landscapes, where typical real estate and traffic costs can be prohibitive for a big box, even one with a reputation of ‘affordable chic’.
Late last year, Walmart made it clear to investors that it plans to focus on its smaller footprints, domestically. The retail giant will be concentrating growth on its Neighborhood Market and Express concepts. Neighborhood Market locations are essentially full blown supermarkets, not to be confused with any other Walmart store entity in the United States. Express locations, as previously mentioned, are stores seen as better able to compete with dollar stores which have thrived in recent years, especially during the recession, much to the admiration and chagrin of Walmart management.
One could not help but wonder, with all this activity at significantly reduced prototype sizes, if the 80,000 sq. ft. CityTarget model was as small as Target was prepared to go. Now word has come that indeed Target covets new territory in terms of store size and market segmentation.
TargetExpress is a 20,000-sq.ft. concept store which is expected to open in July, 2014. The concept’s launch site will be in downtown Minneapolis. Perhaps of greater interest is the actual real estate to be occupied. The space is essentially the ground floor of an apartment building which is under construction. It is near the University of Minnesota campus.
This calls to mind two new types of markets which Walmart newly covets and targets. The first is a compact format aimed at shoppers who seek low prices within a quick shopping trip. The second meets a growing interest in efficiently attracting college students, who by definition are typically cash-strapped and in need of reliably low prices.
Walmart Express clearly was formed to serve the former market. Additionally, Walmart now features another new prototype which is even smaller than its Express format and is designed to serve the latter.
Relatively little publicized and pretty much under the radar, Walmart on Campus averages just over 3,000 sq. ft. and is still in its infancy stage of operation. However, to embark on such a concept and employ a trade name which defines the market it serves, as well as, the locations of its stores, says it all. Here we see a commitment to the belief that the university market is one worth creating a special format to properly serve.
TargetExpress enlists a distinctly uniquely diminutive size for the company. This combined with a distinct community location, indicates that the parent company sees the same values Walmart has recently begun to serve.
Next we look forward to observing if near-future TargetExpress editions will be placed in like structures and demographically filled communities. The evolution of TargetExpress could eventually prove to be a new multi-market leader. It could also be the bane of independent retailers which previously felt no fear of big boxed Targets. They now may face Targets across the street.