Target opening hundreds of small-format stores

Dive Brief:

Speaking with reporters ahead of the company’s fall national meeting at its Minneapolis headquarters, set for Thursday, Target CEO Brian Cornell said the retailer will open "hundreds" of new small-format stores in urban areas, according to news reports. Cornell said the small-format locations will offer an assortment of product mixes customized according to the demographics of local neighborhoods and serve as pickup stations for online orders, Bloomberg reports.
In addition, Cornell said Target's recent efforts to improve its grocery assortment and reduce food spoilage are not indicators that the company aims to become a major grocer, according to the Wall Street Journal and the Minneapolis Star-Tribune. Target will instead maintain its focus on key categories including style, baby, kids and wellness to fuel sales growth, Cornell said: “Groceries has never been on that list... We’ve been able to drive traffic without having a sushi chef.”
Cornell also said that efforts like the small stores and grocery overhaul will take time to gain traction and won’t be reflected in quarterly earnings reports right away. "One tough quarter — we’ve got to rebound from that. It’s just going to take time for us to get credit for those changes,” he told a small group of reporters at Target headquarters, according to the Star-Tribune. “It’s not going to happen overnight.”

Dive Insight:

Target has already opened 23 of the “flex-format” stores cited by Cornell in areas including Chicago, Philadelphia and Berkeley, CA; the retailer plans another nine this year, and at least 16 next year. The stores are smaller than 50,000 square feet and designed to be convenient for urban shoppers.

Target is taking advantage of the retail space left vacant by some retailers shrinking their physical footprint, much of it in favorable locations in key cities. The small formats have a proven track record, retail industry analyst Ken Perkins said in a research note published in July: “Sales productivity levels are double those of traditional stores and the product mix is more attractive,” Perkins said, according to a report. “We are optimistic about the growth prospects of Target’s urban and flex stores.”

Small format locations are one answer to dollar stores, which have challenged both Target and Wal-Mart, thanks to their locations and low prices. Wal-Mart earlier this year ended its own experiment with smaller format stores, a move questioned by some analysts.

When Cornell says the stores will be dialed into the neighborhood’s demographics, he means that some, like the one in New York City’s TriBeCa neighborhood, will offer plenty of baby and kids merchandise for that area's many families, while others like the location near the University of Maryland will have “very little baby, not a lot of toys, and a big focus on beauty and apparel.”

Retailers have long gleaned from sales in the areas they operate what sorts of merchandise they should carry, but today’s technology, a Target forte, can give them even more precise consumer information than what was traditionally available. The challenge for national chains is balancing their brand’s ethos with local proclivities, said Michael Stefanakos, VP at “lean retail” analytics firm FieldStack.

“There are things that you carry in your store that make it who your store is, and [customers] expect them when you walk into that chain,” Stefanakos told Retail Dive earlier this year. “Then you have things that are regional, and hopefully you’re looking at analytics to figure out what those will be."