Target thinks small to succeed big time

Discussion
Source: Target
Mar 04, 2020
George Anderson

Target’s push to open smaller locations in recent years has been one of the chain’s success stories. It’s worked so well that the retailer is thinking of developing even smaller stores, so that one day it will be able to have locations almost anywhere.

Speaking on yesterday’s fourth-quarter earnings call, CEO Brian Cornell said that Target plans to open more of its smaller-format stores, which typically span about 30,000-square-feet, this year in urban centers, near/on college campuses and in tourist areas such as Disney World, the Las Vegas Strip and New York’s Times Square.

“We’re fine tuning our approach with each project. Like any new neighborhood, you have to really live in it to figure out the daily rhythms and routines,” said Mr. Cornell. “In Tribeca, for example, we knew there would be a steady stream of office workers over the lunch hour and tourists on weekends, but we didn’t realize just how much room we’d need to accommodate all the double jogger strollers in our aisles. Trust me, they’re huge.”

Target’s CEO said the retailer individualizes its merchandising, replenishment and operational strategies for each small store location and the results are worth the effort. The chain’s existing 100 small-format stores have moved “well past” $1 billion in annual sales, generating about three times the revenue per square foot as its big boxes.

Target thinks small to succeed big time
Source: Target

John Mulligan, Target’s COO, said the retailer has learned a lot about operating small stores, taking a slow and steady approach since its first in 2014. In 2020, he said, Target will open around “three dozen” stores, its most ever in a calendar year, and that the retailer is looking to see “just how small our stores can be.”

Speaking to analysts, Mr. Mulligan said Target wasn’t talking about introducing a completely new concept, but a tweak to its small store format that would give it greater accessibility to shoppers.

“While our smallest location today is about 12,000 square feet, our team is exploring sites half that size. Think a convenience store size box nestling neighborhoods across Chicago, Philadelphia or New York or right in the middle of a bustling campus,” he said. “We’re still in a space to offer the categories guests want from Target, like beauty, home and grab-and-go food. This design could open up hundreds of additional site options to serve even more people in new trade areas, and to give guests a nearby pickup spot for online orders.”

Target plans to debut its first smaller box store next year.

DISCUSSION QUESTIONS: Has Target’s experience operating stores between 12,000- and 30,000-square-feet prepared it to succeed with even smaller locations? What do you think of Target’s plan to begin testing a 6,000-square-foot store in 2021?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"With this plan, Target is doing many things right to stay consumer-centric and competitive."
"Say goodbye to prototypes. Smaller, locally-focused “Stores of the Community” are the wave of the future."
"Retail has to follow housing trends. Many American cities are being repopulated. They are under- or historically poorly-served markets."

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26 Comments on "Target thinks small to succeed big time"


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Art Suriano
Guest

I have said this before and I’ll repeat it, small stores are the way of the future. Target knows that and they see success. As technology continues to move forward, consumers will become accustomed to going to the store to see the item, try the item and decide on whether or not to purchase it but, when they do (in most cases) they won’t leave with the item.

They’ll pay for the item and through technology (possibly drones) it will be there waiting for them by the time they get home. That’s the future. Target is smart to see that now and to be the first retailer going in that direction.

Small stores make a lot of sense. They cost less to operate, require less staff, have lower costs for utilities, cheaper rent, and the list goes on. Watch how other retailers known for their large stores will soon be following Target’s lead because that clearly is the future of retail.

Brandon Rael
BrainTrust

The rightsizing of store fleets and optimization of store formats has emerged as a significant trend in 2020. Target is at the forefront of this move with its smaller format locations, and the results are indeed very impressive. Today’s customer still enjoys in-store shopping experiences, however it’s clear that smaller format stores — which drive localization with their merchandising, assortments, replenishment and operational strategies — will resonate.

In addition, Target has invested significantly with their digital transformation efforts, and offer a seamless omnichannel-ready operation that puts the customer in the control as to how, when and where they can pick up their products via the various BOPIS solutions. As the smaller format stores continue to scale and drive efficiencies, it’s clear that 6,000 square foot stores will be just as successful.

Dr. Stephen Needel
BrainTrust

The key will lie in curating the assortment for these new small stores. The right assortment and the right price for a store in a neighborhood with high name recognition could be ideal. Get the assortment wrong or have too limited an assortment and these stores will have problems.

Richard Hernandez
BrainTrust

I agree with Stephen 1,000 percent — While I think small stores are a great option for demographics than cannot support a 100,000 square foot store, the assortment has to be tailored to the community. In this case, one size does not fit all and while it does take some more work to make a store truly localized, it will pay off in the long run and create the bond with the customer that makes them feel that is their Target store.

Ricardo Belmar
BrainTrust

If these stores become a “go-to” for consumers, that newfound deeper brand relationship should also manifest itself on Target’s online sales in those zip codes. What a great way to convince customers to start their online product search with Target over Amazon!

Steve Montgomery
BrainTrust

You are absolutely correct. The products section will be a very large contributor to the success of these smaller formats. The old rule was big boxes were not good at running smaller stores, but that doesn’t have to be true today with the information available.

Zel Bianco
BrainTrust

This is a winning strategy for Target. This is what category management and shopper insights are all about – knowing what items will appeal to the ebbing and flowing traffic, demographics and every other area where data will provide information to truly understand the specific neighborhood where it is located.

As Brian Cornell stated, in Tribeca you have office workers during lunch and tourists on weekends. Target is nearly finished completing a smaller store near Columbus Circle that will also have its own significant traffic from area residents, tourists, traffic from Central Park and more. This formula will allow Target to cherry pick neighborhoods and will be the new way retailers need to think about what a store should be. Kudos to Target and Brian Cornell.

Gene Detroyer
BrainTrust

Zel, you are right. This is the key. “This… will be the new way retailers need to think about what a store should be.”

Suresh Chaganti
BrainTrust
Suresh Chaganti
Co-Founder and Executive Partner, VectorScient
6 months 19 days ago

It makes sense. Product assortment that is relevant to local demand is the key.

Shelley E. Kohan
BrainTrust

Target will succeed in the smaller format stores, especially with its approach of slow and measured roll-outs which allow the company to perfect the model. The brand recognition will certainly drive foot traffic into the smaller locations and with the focus on the guest, both product assortments and service will align with the shopper needs. Target is changing the shopping behavior of customers with pick-up, drive-up and same-day delivery. In the Life On Campus stores, the options include delivering to the college dorm, pre-order staple supplies and pick-up at the store. All of these benefits will resonate with college students (and parents) and will drive further digital transformation beyond the 24 percent increase over LY in digital. Fresh food offerings will be next on the list of conveniences that Target will master.

Bob Phibbs
BrainTrust

They’ve mastered what it takes to deliver at scale. I bet more on their strategy than Amazon Go and the like.

Neil Saunders
BrainTrust

Target’s existing small stores are basically cut down versions of the larger ones. They have worked well but there is an opportunity to create a new, much smaller format that is focused on essentials and everyday items with a select smattering of other products. This will give Target much more scope to open in neighborhoods where it has been uneconomical to place larger stores. I also believe this will help boost online sales in local areas and provide a better network of stores from which to collect online orders – something that is helpful to margins. This is a winning strategy for Target as it embarks on its next phase of growth.

Gene Detroyer
BrainTrust

I have been continually critical of Target and the “silver bullet” approach to solving problems. The move discussed today, however, reflects dynamic thinking. As Zel said, “This…will be the new way retailers need to think about what a store should be.”

I also think it will propel the brand to mean something more to the consumer.

Georganne Bender
BrainTrust

Small is the new black and has been for the past few years. Smaller stores are more intimate and more flexible. It’s easier to build a “shop local” perception when the sales floor isn’t overwhelming.

Smaller general merchandise stores can easily feel like convenience stores. I am guessing that Target wants its smaller footprint to feel more like shopping in a cool indie retail environment. I like that Target staff is “living in the neighborhood” to understand what each one needs. Rachel Schectman did this with Macy’s The Market in Texas and it appears to be working. Real community is important.

Lisa Goller
BrainTrust

Target’s recent experiments will yield insights on how to thrive with even smaller stores. Target is wise to shrink because the “small is big” retail trend isn’t going away.

When stores are cozy (vs. cavernous), many consumers value the convenience and efficiency of shopping in a more compact space. Less space demands thoughtful curation of bestsellers and a localized assortment to enhance the quality of Target’s offering and the customer experience.

Smaller stores also make the retail giant nimble enough to squeeze into desirable, high-traffic locations, and delight busy urban consumers with easy online pickups and returns.

With this plan, Target is doing many things right to stay consumer-centric and competitive.

Andrew Blatherwick
BrainTrust
Brian Cornell is correct in saying running smaller store formats is different and that it gets harder the smaller you get because every inch and movement becomes more critical to your success. There comes a point where very small stores just become uneconomic to trade – whether that’s 6,000 square feet or 10,000 square feet will depend on the location and traffic. There is no one size fits all. What is vital is that retailers understand small format retailing is tough and you need to be much more precise with your layouts and your supply chain planning and execution. There is some great technology to help store operators with getting this right and it is essential that retailers have a better understanding of their customer base and demand than in a big box store. Some retailers think small stores can be managed by junior or less experienced store managers because they do not have the high number of staff or turnover of a big box. This is a fallacy as you need to be really… Read more »
Stephen Rector
BrainTrust

Living in Manhattan, to have the Target experience that I was accustomed to in other cities but in a smaller format has been great. The curation of assortment to the location is critical to the success of this format.

Dick Seesel
BrainTrust

Target has been very flexible in opening stores with different sizes and formats. More importantly, they are figuring out how to tailor assortments to store size and location, perhaps better than anybody else in retail. (Personal case in point: My daughter’s NYC apartment now has a small format store a few blocks away, and it’s her store of choice for essentials and more.) If Target can manage high occupancy costs, you can’t beat the population density in urban centers like New York, Chicago and elsewhere — especially among a generation who grew up shopping with their parents at Target in the suburbs.

Paco Underhill
BrainTrust

Retail has to follow housing trends. Many American cities are being repopulated. They are under- or historically poorly-served markets. Target like other national players needs to get local. 85 percent of the product mix stays the same – but the 15 percent needs to be well chosen. Anyone know what Banana Ketchup is? Or the importance in some markets of Halal meats?

Cynthia Holcomb
BrainTrust

Product pavilions are/have become the victim of what are now old ways shopping. Six decades ago shopping was an experience bound by physical world limitations of store hours and the new demand and glee of product choice vis-a-vis the mall. Enter online shopping and Amazon 24 years ago. Target has been early to recognize why smaller-scale urban walk-in stores with neighborhood-customized assortments are key to the future. Look at Trader Joe’s. Relative to most grocers, Trader Joe’s stores are small and cheerful, loaded with products Trader Joe’s customers love. Target is customer savvy, making an investment in time and resources to treat each 6,000 square foot store as a standalone neighborhood destination.

Centralized product distribution to massive stores is a thing of the past as evidenced by the lackluster performance of the millions and millions of individual product SKUs residing in malls.

Peter Charness
BrainTrust

Curation is king, as would be the ability to rapidly deliver product to the store for pick up, or the shopper’s home for the rest of the assortment. A store can do double duty with some planning and logistics. It is interesting to see what Target learned from being in the neighborhood. Would AI have ever figured out the double stroller need? Sometimes the correct answers are right in front of us, if we can harness the local store knowledge and team experience.

Verlin Youd
BrainTrust

Makes total sense from a few perspectives: 1.) gives them access to strong urban markets, 2.) provides an even stronger BOPIS/click-and-collect network, 3.) takes advantage of “convenience” positioning.

It will be interesting to see if and where they chose to include the CVS pharmacy as part of the footprint and put themselves in direct competition with Walgreens and standard CVS, who are already capitalizing on the convenience offer.

Thought I’d share some Target related humor I saw earlier this week.

James Tenser
BrainTrust

Say goodbye to prototypes. Smaller, locally-focused “Stores of the Community” are the wave of the future. Target has as good a chance of success in this new geography game as any retailer.

Big boxes and anchor stores used to be the source of power for chain retailers. Today, some of those lease holdings can descend into liabilities that are too costly to close, so they just lose money at a trickle.
Better in-store sensing, digital tech, and AI analytics are opening up a world of new business practices that enable smaller footprints, more curated assortments, and locations closer to the places where shoppers live.

Shep Hyken
BrainTrust

Going to the typical Target store is almost an event. Getting into the HUGE parking lot that is typically crowded and then navigating the HUGE store makes the idea of a quick stop for one or two items a bigger than necessary ordeal. However, these smaller stores will give the customer a quick in and out experience. The smaller stores will create a convenient and experience with less hassle. What customer doesn’t want that!

Ricardo Belmar
BrainTrust

What’s another advantage to small, convenience store-size formats? Less competition from online sources! With these formats, Target can specialize in the products and categories that consumers need on-the-go and in and around their neighborhoods. These stores become the go-to place for shoppers when they need something quickly and don’t have time to go through “discovery and search” online. Target has learned this from its current, smaller stores and they are smart to expand on them, particularly in densely populated areas. It’s Target’s way of saying to the world, “What retail apocalypse?!”

If their existing 100 small stores are already generating over $1B in sales and outperforming their larger cousins in sales/sq ft, then Target is getting this right. I expect we’ll see more retailers emulate these tactics — small stores are here to stay and they are absolutely the store of the future!

Jeff Sward
BrainTrust

Great point. The collision of more and bigger malls populated by more and bigger stores with the internet is giving consumers smart choices. Malls are a bigger investment of time on the consumers part, so when they have it, great. But when they don’t have, a smaller store in a strip mall or free standing setting is going to get the visit. Time and convenience are proving to be more important currencies than they were in the past

wpDiscuz
Braintrust
"With this plan, Target is doing many things right to stay consumer-centric and competitive."
"Say goodbye to prototypes. Smaller, locally-focused “Stores of the Community” are the wave of the future."
"Retail has to follow housing trends. Many American cities are being repopulated. They are under- or historically poorly-served markets."

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