Target May Go Small to Open Urban Stores

Discussion
Nov 19, 2009
George Anderson

By George Anderson

Prime retail space is at a premium in urban locations and finding enough
space for the typical big box is hard to find. That’s why Target is considering
the development of a smaller box format to break into more locations
inside cities.

"We know that consumers in dense urban areas love Target," Gregg
Steinhafel, chairman and chief executive officer of the chain, told Bloomberg. "We
have to work harder at trying to get a smaller Target in those areas."

While Mr. Steinhafel did not say any smaller stores were in the works,
he did indicate that locations in places such as Brooklyn, NY had shown
the chain how it could successfully operate units well below the 128,000
square-feet size of its typical general merchandise stores.

Target plans about 12 new stores next year and more in the years that
follow, according to Doug Scovanner, chief financial officer for the
chain.

"The constraint in 2011 and 2012 is the availability of suitable
sites," Mr. Scovanner told Bloomberg. He also said the company
would like to return to historic levels of store openings of 100 units
a year if opportunities present themselves.

"We have the capital to be able to do that and we have the appetite
to do that, but the availability’s not there," he said.

Target also announced it will expand its PFresh concept to 350 more
locations over the 108 where it is currently testing fresh foods in general
merchandise stores. PFresh stores carry between 50 and 200 percent more
food products than traditional Targets in roughly 1,500 square-foot departments.

Discussion Questions: What do you think of Target’s general expansion
strategy? Do you see urban locations as a path to success? What about
its PFresh test?

Please practice The RetailWire Golden Rule when submitting your comments.

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24 Comments on "Target May Go Small to Open Urban Stores"


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Dick Seesel
Guest
11 years 5 months ago

Target and other national chains (such as Best Buy and Kohl’s) have opportunities to open small-format stores, not only in urban markets where a smaller footprint is required, but also in smaller markets that can’t sustain the volume of a full-size prototype store. The challenge to Target in particular is to consider how to edit its businesses and assortments to suit the urban customer.

Does it focus on consumables, HBA and other convenience-based categories? (If so, it runs the risk of being perceived as a large-format Walgreens or CVS.) It’s easier to determine which businesses ought to be eliminated completely (I would start with categories like CDs and automotive) than to decide which categories to focus on. But if Target plays to its strengths in trend apparel and home goods, its brand positioning becomes a lot more consistent, despite the company’s more recent emphasis on food.

Kevin Graff
Guest
11 years 5 months ago

Looking around downtown Toronto and Vancouver this week, I’ve seen Home Depot, Costco, Canadian Tire, Longo’s and others squeezed into smaller than usual spaces and seemingly doing very, very well. There’s no magic to this…go where the people are! As more cities move to increased housing density in their core it represents a logical opportunity for the likes of Target and others to reconfigure their offering to fit in smaller locations.

Doron Levy
Guest
Doron Levy
11 years 5 months ago
Target has always been a suburban destination and the availability of sprawling power center land has fueled that. The trend for ‘ubanites’ is now to stay in the urban core and patronize retail locally (a boon for the small merchant!). Big box is picking up on that trend and there is a push to go ‘back downtown’. I’m seeing large grocers and mass merchants popping up in locations I never thought could house a big-box retailer. Creating compact and unique layouts are allowing brands to go into spaces that normally wouldn’t work. This is where you need a crack team of category managers to decide on the mix for the smaller location. Is it a good idea for Target? I say yes. They can now extend their brand reach into urban centers. Customers are eliminating the drive to the ‘burbs to go shopping in an effort to save money (remember: era of frugality). I could see a centrally located smaller Target (UltraTarget? MiniTarget?) working well in major cities. Now if they could only make their… Read more »
Andrea Learned
Guest
Andrea Learned
11 years 5 months ago

Add in sustainability and appealing to the women’s market, and this is–as the current poll numbers reflect–a 100% good idea. Much that is being written today on urban planning points to how much more “green” urban/walkable living actually is (there’s a great piece by David Owen in the 10/18 New Yorker) so Target does have a lot of opportunity in serving those many folks now choosing to live in a more sustainable way. On a related note, the subtle message of even considering a smaller store model resonates with today’s values-based buyer, who often tends to be Target’s core customer: women. I’ve been waiting to see this smaller footprint transition for big-box stores, and Target is the company I expected to take the lead. It will be exciting to watch.

Susan Rider
Guest
Susan Rider
11 years 5 months ago

This is a huge opportunity and will be a success if the execution is completed well. There is a concentration of people and demand. The opportunity is space and logistics. Obviously you can’t pull in a big tractor trailer and unload the inventory!

Bill Emerson
Guest
Bill Emerson
11 years 5 months ago

This is a very smart strategy for Target, providing them with new growth opportunity. Target, like most (but not all) big-box retailers, has avoided the urban environment for a variety of reasons–occupancy expense, daunting regulations and logistics challenges, high payrolls, shortage, etc, etc, etc. Making money was a lot simpler in the suburbs.

Approached thoughtfully, however, there is big opportunity in the urban setting. High population density and relatively less organized competition, along with an assortment that is tailored to the urban customer can produce incredibly high sales per square foot. Just ask the folks at Bed, Bath, and Beyond. Their 3 stores in Manhattan, for example, are estimated to produce over $250 million annually.

Look for this to become a growing trend as the big boxes look for new growth in a tough economy.

David Biernbaum
Guest
11 years 5 months ago

I’m not bullish on small Target stores in urban areas. What often happens for retailers that go “small” is that they tend to carry only the everyday staple items while leaving void the specialty items that truly draw loyalty and attention to their suburban stores. Often, consumers find the small stores to be just “small” and they come and go disappointed.

Keep doing what you do best and do it better.

Cathy Hotka
Guest
11 years 5 months ago

I’ve never seen a RetailWire discussion with 100% of the responses in agreement…until now.

City-dwellers have to travel long distances to buy staples like socks, underwear, and household basics. For us, stores like Walmart and Target are exotic, vacation-like destinations. Bring it on!

Mel Kleiman
Guest
11 years 5 months ago

Go where the customers are, make it a pleasant experience, and carry the things they want and need most…and make it easy for them to get to you. I don’t know anyone who did not shop someplace that offered the above because it was too small. Some people do not shop some places because they are too big.

Lee Peterson
Guest
11 years 5 months ago

It’s actually much more than just an urban opportunity. The strategy of building multi-format brands has been proliferating for retailers simply because it allows you to accomplish two major initiatives:

— Get into areas (incl. urban) that you are not currently in – i.e. new growth outside of your current real estate model.

— Get the most out of existing assets; remodel your older stores (usually smaller) and upgrade/downgrade existing units to ‘right-size’ them to their performance, literally.

This idea has been present in grocery for a couple of years now (see Safeway) and is now spreading across retail. If you consider the two points above, those are THE initiatives for retailers in this environment; new growth and improving same-store sales.

David Livingston
Guest
11 years 5 months ago

Target might see some of its biggest opportunities in the soon to be available Kmart properties–tear down and build new. Sure, the small urban store format will work, but only a handful. This is not something they will hang their future on. They are not going to the bad neighborhoods. Target has already learned a hard lesson there.

The P-Fresh remodels seems to be working. I don’t see it impacting grocers much, mostly because Target simply doesn’t have the dense store count and devoted square footage the way Wal-Mart does. But Target does see larger basket size and more frequent shopping trips after they convert.

Paula Rosenblum
Guest
11 years 5 months ago

My only concern about smaller format stores is similar to what I have with Walmart’s “Neighborhood Market” concept.

When your entire logistics world is set up for tonnage, moving to half-tonnage or even worse, LTL deliveries is a daunting prospect.

So the top line will work…but the expenses may prove problematic for the company itself.

M. Jericho Banks PhD
Guest
M. Jericho Banks PhD
11 years 5 months ago

There’s something poetic and perhaps a little predictive in Gregg Steinhafel’s reference to this “[considered] development” as a “smaller Target.” Hitting a smaller target requires greater precision and a refined weapon. Of course, this refers to Target’s marketing plan, which means it must rely on more than the belief that “consumers in dense urban areas love Target.” I also wonder about the statement that there is a dearth of suitable sites. When will more suitable sites become available, after the recession when the rate of store closings lessens? I was under the impression that there’s more retail space available today than at most times in our recent history.

If you’re gonna’ do it, Target, do it. And forget the trial balloons. A hint, here, offer delivery. I have friends in the boroughs who have never owned a car. They’re proud of the fact that they can “get anything delivered, any time of day.”

Liz Crawford
Guest
11 years 5 months ago

Target “Small” is great for city dwellers. But Target should focus on categories needed by urbanites. Probably not attire. Probably housewares. There is an opportunity for specializing in housewares and casual furniture for small dwellings. Pottery Barn has a department for Small Spaces…there aren’t too many of these offerings for apartment dwellers. Also, the small footprint big box is becoming accepted by shoppers in a few categories.

Craig Sundstrom
Guest
11 years 5 months ago

Target already operates a store in downtown Minneapolis next to their HQ. I don’t know how well it does, and of course given the location it may be a vanity project, but they have at least that much experience in an urban setting.

Herb Sorensen
Guest
11 years 5 months ago

Does a dog have fleas? Of course massive urban populations represent a massive opportunity for any retailer. This is all about taking the goods to the customer, rather than waiting for the customer to come to the goods–what I call active retailing, rather than passive retailing.

Now, if only retailers would begin to think about the same principles inside the store that the small store movement (nationally) is leading them to, they would even learn how to win with the suburban big boxes. “Always low prices” is NOT the only way to sell successfully. Personally, I wouldn’t even think of that strategy if I were a retailer. Rather, it is all about, first, reaching the right customers–small stores is just one step–and next to “close the sale.) But then, with their history of self-service, (sell yourself) retailers have no background or culture in selling, just order taking, at best.

Doug Stephens
Guest
Doug Stephens
11 years 5 months ago

Yet another sign that the era of the suburban power mall is coming to an end.

This goes beyond the issue of available space and speaks more about the trend toward urbanization. Not only do foreign born Americans gravitate to cities for work but aging baby boomers will increasingly migrate into urban centers to be proximate to services, transit, and shopping.

Unload the Range Rover and the McMansion–downtown’s where it’s at.

Mark Barnhouse
Guest
Mark Barnhouse
11 years 5 months ago
Target was going to build a downtown Denver store a few years ago, but the deal fell-through. The site was largely a surface parking lot, and there would have been a light rail stop just outside the store’s door. Across the street is a T.J. Maxx, and a block further down a Ross; in the other direction, a 3-level shopping center anchored by a United Artists multiplex, Nike Town, Hard Rock, B&N, and Virgin (whose former space has been leased to Forever 21). It was an A-1 location in a lively downtown, peopled by all classes, races and ethnicities. Everyone was disappointed when it didn’t happen. To make this work, Target needs to partner with developers (once credit is loosened up again) for mixed-use projects anchored by Target that would combine housing, office space, and other retailers. Done right, they would not have to compromise much–just make sure those large semi-trailers can dock without too much effort, and buy smaller shopping carts for the narrower aisles. And bring grocery!
Ted Hurlbut
Guest
Ted Hurlbut
11 years 5 months ago

This is a good time to pursue this strategy, with urban rents at historic lows. Rents have traditionally been a significant barrier for mass marketers, who have had to make the ‘per square foot’ economics of these locations work, considering the relatively modest gross margin levels they work at.

Mark Burr
Guest
11 years 5 months ago

Going small should be a huge gain for Target especially in the urban market. They could go smaller in most markets and likely gain higher sales and profits. There is a ton of wasted space and unnecessary SKUs in every Target I have been in–period. The right size and right SKU selection could be a huge win for Target.

James Tenser
Guest
11 years 5 months ago
Evidently, the days of meeting analyst expectations by rapidly adding geography are over for the big box retailers. Now growth must come from improving existing store productivity and, as Target is proposing, zeroing in on harder-to-reach urban populations. Mr. Steinhafel’s comment about possessing the will and the capital speaks volumes. Downtown real estate and operations have always been more challenging compared with the wide open, but now over-stored ‘burbs. And downtown site development happens much more sl-o-o-w-ly. Just ask the folks who run Duane Reade. So Target has several challenges before it: First it has to work hard at defining its in-town format. Just making the aisles narrower and trimming a few SKUs will not cut it. I’d venture that a separate merchandising concept may be necessary–a “town” Target versus the big box “country” Target we are used to today. In short, heading downtown may be a pivotal moment for Target’s brand. It seems to recognize that it can no longer force top line growth just by adding square footage. Whether in town or country,… Read more »
Norrelle Goldring
Guest
Norrelle Goldring
11 years 5 months ago

Further to Richard’s comment about assortment choice, and given Target’s broad category offer, they might actually have the opportunity to cherry pick ‘which categories/which locations’ rather than try to range all categories with less assortment in every location.

In other words, go where there gaps are–if in some neighbourhoods there isn’t a fresh offer, focus on Pfresh there. Where if other neighbourhoods are lacking apparel, focus on that.

It will be interesting to see to what extent they impact ‘high street’ or local strip shopping and small boutiques using this model.

Re PFresh: they should look to Tesco Fresh & Easy for some watchouts.

Does anyone have information on how Walmart’s Marketside concept is doing? (They weren’t yet open in Arizona when I was there 12 months ago).

Scott Knaul
Guest
Scott Knaul
11 years 5 months ago

This is a great opportunity for Target to reach more people. Consistent with other comments, the trick for them in a smaller store is to figure out which products will fit into the smaller box.

William Passodelis
Guest
11 years 5 months ago

Great responses! A small Target is a great idea for cities–and a SHARP focus is NEEDED. They will need to do some research on what is wanted in a specific location; some places may actually want attire while other locales would do better with home goods and small furniture. There are some inner city locales where clothing options are poor, unless you go on a long bus ride. Target can be very chic and definitely “discount upscale” as we all know. Yes I know that is an oxymoron but it is true–many if not most city shoppers are fairly sophisticated and Target can take advantage of a population that is craving affordable style for a portion–or in some cases–a large amount of their “stuff.”

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