Why large retailers are getting smaller

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Target said this week that it would open about 30 lighter stores this year in cities like Los Angeles, New York and Washington, DC, as well as on college campuses. These stores, with an average area of ​​40,000 square feet, represent one third of the size of Target's traditional sprawling stores.

The plan follows several other department stores that open smaller stores or downsize to bring in urban shoppers and save money with online purchases that take over in the suburbs.

Small stores in the suburbs and university towns are a key part of Target's growth strategy as they help the company attract buyers who may have been inaccessible in the past. For example, Target (TGT)opened a 60,000-square-foot store last year in South Burlington, Vermont, a first in the state.

"These stores are helping us to penetrate into new neighborhoods, where a normal-sized store would not be suitable," Chief Executive Officer Brian Cornell told analysts at a presentation of the results on Wednesday.

It will be important for Target to win new urban and student customers with well-located stores, which will slow down the construction of large stores. Target will open only two of its traditional stores in 2019. Rival Walmart (WMT) also slows the opening of new stores. It plans to open less than 15 supercentres this year and will instead invest in home improvement stores and online growth.

Target accelerated its small store campaign after testing different formats and designs. In 2017 and 2018, it opened about 30 per year. Target now has 87 small stores and will open its 88th store this week in San Diego. The company plans to open about thirty a year in the next few years.

Target stores each store with different merchandise. The stores near campus offer basic amenities and dormitories, while others in New York provide more luggage to tourists.

The operation of these small format stores is difficult. Target teams had to use smaller trucks to make deliveries to blocks and determine what merchandise to put on the shelves. Target has stepped up its investments in the supply chain to meet the additional demand in small stores.

"Managing a small store is not as simple as reducing your assortment for less space on the shelves," said Tory Gundelach, an analyst at Kantar Consulting. "Most retailers have not figured out how to make a small footprint."

Target has opened a small store in Bensonhurst, Brooklyn, in 2017. Target currently has 87 small stores in the country.

Although real estate is often more expensive in cities and around campuses, smaller stores are cash cows for Target. The Herald Square Target Store in Manhattan generates more sales per square foot than any other store in the country.

"These are our most productive stores in America," said Cornell.

Other retailers have also reduced their activities in recent years to penetrate densely populated areas and gain ground with new customers.

General Dollar (DG) opened DGX, about half the size of a regular store, in several cities. Happy New Year (GT) In October, IKEA will open a 17,530-square-foot showroom on Manhattan's Upper East Side next spring. Ikea recognizes that it is necessary to develop a new strategy to attract young urban shoppers who want to go to a store, but do not own a car or want to go to the outskirts of cities.
Chain stores are also trying to use their sales spaces in different ways, as more and more consumers are spending online. Macy & # 39; s (M) and Kohl (KSS) have reduced the size of some stores, while JCPenney (JCP) Last week, Jill Soltau, CEO, told analysts that the channel was looking to reduce sales space.
Kohl's was one of the most aggressive retailers to have downsized its stores and decided to give the extra space to a few outside partners. On Tuesday, Kohl announced that he would be renting space at Planet Fitness (PLNT) nearly 10 of its stores in 2019.

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