Target Looks to Go Downtown
Walmart isn’t the only big box retailer looking to develop a smaller box alternative. Target, while not going to the extreme of a 15,000 square-foot model a la Walmart Express, is looking at urban centers to open its own smaller City store concept.
So far the chain has plans to open stores in Chicago, Los Angeles, San Francisco and Seattle, and, according to the Denver Post, Target is scouting Mile High locations, as well.
As a piece on the Bloomberg Businessweek site points out, consumers in cities have been forced to travel out of town — aside from the occasional pop-up store — to shop in the cheap chic nirvana that is Target.
"It’s like we’ve been dating long distance," John Griffith, executive vice president at Target, told Businessweek. "Now we’re going to be right in their backyard."
The City concept is currently 80,000 to 100,000 square-feet compared to the 135,000 square-feet of a typical Target store and may go even smaller as space and zoning restrictions apply.
Regardless of the final size, City Target will be different than suburban stores. For one, space requires more tightly edited merchandise selections and smaller sizes. City stores will also be part of Target’s P-fresh initiative, offering fresh foods with the goal of driving more frequent shopper visits. Prices will also be higher to help pay higher rents that come with in-town locations.
Leon Nicholas of Kantar Research believes that Target may be challenged to keep shelves stocked in City stores. Of the retailer, Mr. Nicholas told Businessweek, "Its weak spot has always been operations."
Target plans to have 10 City stores open by the end of 2013 and will wait to see what it needs to do to make them profitable before building any others.
According to the Denver Post, that city may be the location of one of the first 10 Target City stores.
Jim Kirchheimer, senior vice president at the Downtown Denver Partnership, told the Post, "We’ve been talking, and the interest is mutual. We’d love to have a retailer of the caliber of Target in downtown Denver."
"I think a downtown Target store would be extremely successful," retail broker Stuart Zall of the Zall Co, told the Post. "It would fill a void that exists. With the residential densities that downtown now has, and combine that with convention business and tourism, a Target store would have mass appeal."
Discussion Questions
Discussion Questions: What do you see as the challenges and opportunities facing Target as it opens City locations? What cities, other than those mentioned, do you think make the most sense for Target City locations?
The challenge will, I think, be in merchandise selection that is more appropriate to a more urban setting. I picture Target as a suburban department store more than an urban place. Why conventions and tourism should have any impact on their success is beyond me — I’m not going to Target when I’m visiting another city.
Walmart and specialty retailers in the big box grouping may also want to follow these leaders. Smaller stores in big cities and in areas where the population and demographics would not support a larger store would benefit from the presence of the brands.
A number of factors play into the opportunity for smaller stores. The aging of America, online shopping, and the use of mobile devices could be reasons why smaller stores will succeed. It’s also the 80/20 rule. If 20% of the merchandise produces 80% of the sales, why not configure a store that carries at least the 20% plus the national advertised sales items, and allow the consumers to order anything else they need not carried in the smaller store online for store pick up in a few days.
Lastly, store operations will need to be more like the operations of a supermarket: more frequent deliveries, night crews and stocking during the sales day. Nothing too complicated but a bit different from the normal operation of many big box type retailers.
Given the need to edit the assortments, and the higher rent problem, I am really surprised the company is going to use the P-fresh initiative in those stores. I don’t think the higher prices are going to be helpful, and frankly, there’s nothing chic about food. I would have thought that would be the FIRST thing you edit out of the assortment.
Beyond that, the biggest challenge will be logistics, although 100,000 square feet stores are better able to take a full truckload of deliveries than a 15,000 square feet one. When you’re used to delivering tonnage, delivering ounces and pounds is just not so easy to adjust to.
Any city with a large vertical population will be an opportunity. Milwaukee, Washington DC, Philadelphia; we could go on all day. One challenge will be price if they hope to compete with Walmart in the same area. And as always, trying to deliver the message that Target sells groceries.
The challenge that big box stores will have with “smaller box” stores, is that these stores will probably refrain from carrying the fringe and specialty items that shoppers want to browse, explore, and buy. And these also happen to be the items that provide the highest margins and most productivity for the retailers. My concern is that these smaller box stores will carry nothing but fast moving commodities.
Cheap chic and an urban environment seems like a good match. Care will need to be taken in terms of city and location since some cities have pockets of older consumers and some have pockets of younger, working adults. Matching merchandise with consumers is always a critical factor and that is no different with a new format.
Every city has its specific challenges, but I can tell you one thing, in the city that never sleeps, Target would do great. Even with thousands of choices in NYC, Target would certainly fill a void for many categories that you’ve come to expect to find at Target. After moving back into the city from the suburbs, it is one of the few things I miss.
Location, location, location! Food? In Chi-town, State and Madison is in a burgeoning Loop residential district.
Urban? Successes in NYC prove brand’s relevance vs suburbs. TGT multi-cultural cred is strong.
Success? Inner city stores have many hidden costs. Or as we like to say, “retail ain’t for sissies.”
It’s a great opportunity to expand the brand’s footprint beyond the suburbs. It allows Target the ability to enhance the brand perception by becoming a preferred shopping destination of hip urbanites.
Operationally it will be a challenge, but ultimately it doesn’t have to be an issue that affects consumers.
Many of the urbanite market will include those who do ultimately move to suburbia at some point, and Target will have the opportunity to not only offer a downtown shopping experience and convenience, but will also provide the ability to create and nurture relationships with these shoppers that can carry forward when the move around.
The concerns will be along the lines of what might be broadly termed as logistics: SKUs carried, layout — multi-floor layouts presumably being necessary — and how carless customers will carry away their purchases. Unmentioned here is that they’ve long had a downtown store next to their HQ in Minneapolis, so (what is presumably) the test lab has been up and running for some time.
Likely candidates? The usual suspects: cities with large downtown “populations”, be they residents, office workers or tourists … ideally all three.
Product, price, location and selection. These are the keys to Target’s success for their City locations. Target cannot forget its roots and should not change its pricing, positioning, and mix. A simple reduction in selection (choosing only its best selling items), should ensure that its stores are a success.
Target is perhaps a little ahead of the urban renewal plans taking place in North America’s cities. Opportunities for their success plans are more dependent on demographics and upper middle class economic stability than the “X” Marts now in play for this avenue of expansion. As in any venture timing is critical. I’m of the opinion that this jump is too soon for these locations. If I had to make a move Atlanta, Dallas and St. Louis are as risky as I might get.
There are a number of challenges here, and each city brings it’s own issues that would have to be addressed.
As an example, the Loop store on State Street should prosper given the dynamics of tourists, residents, and the like; the Boston HUB would be another good fit. However in a downtown area like Philly, mid-level retail tends to draw the very poor who come to Center City since their own neighborhoods lack reputable stores.