Although Target is firmly focused on remodeling its existing stores to reflect investments in “Ease and Inspiration,” the retailer is not finished opening new stores. Its eye for new real estate has merely shifted from its suburban discount format to its small-format stores (Figure 1). Drastically smaller than the typical store (less than half the size of the average 100,000-square-foot discount format) and usually located in urban areas, the small-format stores represent new opportunities for Target and its suppliers as it seeks to win with Millennials and prove its relevancy.
Figure 1: Target Small-Format Store Openings in the U.S.
Three Key Drivers of Target’s Small-Format Strategy
Target is following the migration of Millennials who are graduating from college, becoming independent spenders, and moving to or staying in cities. And this Millenial urbanization trend shows no sign of stopping. In fact, a study of Census data found that the share of recent college graduates who live in the largest U.S. metropolitan centers has soared by 23 percentage points between 1990 and 2015, accounting over half of all recent graduates. When looking at some of America’s popular cities for recent graduates, you find a road map of Target’s most recent store openings: Austin, Boston, Chicago, New York, and Washington, D.C., all now have multiple small formats.
Even outside dense urban areas, Target is opening small-format stores close to colleges where quality, nutritious food is harder to come by without a car. Research has shown that many large universities suffer from food deserts and a lack of decent grocers near campus. Enter Target’s small-format stores. By opening locations close to the Ohio State University, the University of Southern California, the University of Florida, and the University of Texas at Austin. Target can connect with Gen Y and Gen Z college students.
The small-format store is designed to make shopping easy and convenient for college students and young urbanites. To address these needs, discretionary categories offering last-minute wardrobe or dorm additions welcome guests at the front of the store, while a small tech section, often close to the entrance, gives guests the full suite of tech-related services. Further in lies a small but prominent beauty section. Grocery with a limited fresh assortment can be found in the back (or on the second level in multilevel small formats). Despite the limited assortment, most edible categories are available, as are frozen and ready-made grab-and-go meal solutions.
My Take: While the share of Target’s small-format stores is still small (49 locations at the end of fiscal year 2017), the stores are reportedly twice as productive as the retailer’s discount format. As the small format grows, expect these stores to have a growing impact on Target’s overall strategy. Its small-format store growth aligns directly with Target’s brand introductions and broadening fulfillment capabilities. Newer brand introductions like Universal Thread, Goodfellow, Project62, and Opalhouse are all more oriented toward apartment living and Millenial fashion. Beyond branding, expect Target’s small-format stores to serve as ground zero for advancing the retailer’s fulfillment services, especially when you consider the stores’ reduced in-store assortment coupled with the barriers to making larger purchases in urban areas. In cities like Boston and New York, we are already seeing Target test same-day delivery leveraging these stores as outposts for a more expansive fulfillment network across large cities.
Want to know more about Target's small-format stores and its real estate strategy? Join us in Minneapolis on October 17th at our Target Workshop to gain a more detailed understanding of Target's key trends and what they mean for your business.
For more information, please contact:
Ben Antenore, Analyst