Bigger isn’t always better.
Since the turnaround from Retailpocalypse to Retail Renaissance, a number of retailers have been transitioning from big box stores in the suburbs to small-format shops in urban neighborhoods.
Target and Ikea are leading the way.
“The small format store is the best of Target, curated for neighborhoods” — Tim Eklund, VP of Small-Format Stores
The small-format Target stores are about a third of the size—ranging in size from 20,000 to 40,000 square feet compared to a typical 130,000 square feet store size. Though not all of their grand openings have been successfully received.
The smallest Target store to date is located in Chicago’s Wicker Park neighborhood, spanning just 12,800 square feet. Target opened 30 of these tiny footprint stores last year, with plans to reach 130 small-format stores by the end of 2019.
Target has been incredibly transparent in its growth strategy: target college campuses, dense suburban areas, and urban neighborhoods; all locations where a typically-sized store would not fit. Each store’s products and layout are customizedto the needs and demographics of the community it’s located in.
Most of the locations feature grocery, home, health & beauty, clothing, and tech sections in order to cater to the basic home and shopping needs of this growing demographic. But it’s not just college students Target wants to attract. It’s all the millennials in all stages of their lives.
“The layout and product assortment is meant to draw in busy, young professionals and families in the area.” — Corinee Ruff, Retail Dive
Target has also been using one of their core differentiation strategies in their expansion to small-format stores. Brand partnerships with companies like Magnolia (HGTV’s Chip and Joanna Gaines’ line) and Casper along with private label lines, like Project 62, fill the aisles of these micro stores.
While Target may have led the way with extensive expansion, IKEA has been making waves with its move to small-format stores. Their notable announcement of 30 small-store concepts in urban areas across the US and Europe seems to be a clear strategy to reach more millennials. Again.
IKEA’s massive warehouses are iconic for their winding paths that require an hour just to walk through the entire store and have been known to even end more than one relationship before the couple hit the checkout. There are numerous downloadable guides on how to shop efficiently and quickly at IKEA.
“IKEA’s core demographic is younger people who are setting up households, many of whom are living in cities and don’t have access to large vehicles to move heavy merchandise.” — Cathy Hotka, Retail Dive
No wonder IKEA wanted to go small-format. It’s hard to shop at IKEA, especially for their core demographic.
This move comes after a major drop in profit for the Swedish furniture brand with a cult-like following. After laying off 5% of its global workforce, IKEA is looking to downsize its store sizes in order to reimagine the brand.
IKEA is dropping from 300,000 square foot spaces to a variety of smaller sizes. IKEA recently opened a 5,000 square foot store in Warsaw, Poland, a 9,700 square foot location in London, and a 1,600 square foot showroom in Manhattan.
Most of the locations will be nixing the infamous cafe (includingthe meatballs) and introducing more crossover to their e-commerce platform; clearly they’re focused on big cities with potential plans to open locations in Los Angeles, San Francisco, and Washington, D.C..
“Not that IKEA has given up on big stores. It plans a 700,000 square foot one in the Philippinesto open in 2020.” — Erik Sherman, Fortune
Of course, Target and IKEA are not the only brands experimenting with small-format stores. Nordstrom is also going smallwith Nordstrom Local.
“Nordstrom’s is piloting a 3,000 square feet location that carries no inventory for sale and focuses on service and engagement.” — Chris Petersen, Retail Dive
Much like IKEA’s experiment with the showroom concept, Nordstrom Local customers won’t actually be able to leave with anything they’ve purchased, as the locations won’t carry any inventory, but instead pull merchandise from other stores and its website.Instead, Nordstrom is offering something else.
These experiential locations offer same-day online purchase pick-up as, crossover with Nordstrom’s subscription membership Trunk Club, dressing rooms for online selections, and even returns to other retailers.
Acting like a convenience hub, they also offer services like a personal stylist, tailor, cobbler, barber, and donation drop-off. The first Nordstrom Localopened in West Hollywood, followed by another two, also in Los Angeles.
Sephora is rolling out freestanding small-concept stores with an average footprint of 2,000 square feet. The first Sephora Studio opened in Boston, followed by Hoboken, N.J., Brooklyn, N.Y., and Washington, D.C., with plans for more. These locations offer a slew of digital toolslike 3D imaging to allow customers to test out different looks, interactive face-mapping technology, digital check in, and mobilized checkout, to name a few.
Kohl’s is maintaining their location size, but reducing the utilization of their square footage to rent out spaceto their new partner, Aldi. Walmart is building 3,000 sq. ft. convenience stores called Walmart Fuel Stations.
This trend is just for commercial retailers. Taco Bell is in the midst of opening 300 to 350“urbanin-line” locations. These smaller stores will nix the drive-thru altogether, instead focusing on urban markets and kiosks. The Cantina brandwill also offer a twist on the Taco Bell menu, most notably by serving alcohol.
The trend is clear: big brands are moving to small-concept stores to attract more millennial shoppers and to create more experiences to enhance their brand loyalty.