As Target on Wednesday opens a 45,000-square-foot store in downtown Manhattan, it's cutting the ribbon on its latest effort to dive deeper into dense, more affluent markets. Fourteen of these tiny shops are slated to open by year's end, giving the bull's eye retailer a total of 32. Target CEO Brian Cornell has said he can eventually envision hundreds of these stores opening.
Yet the retailer remains far behind Wal-Mart, which is likewise shedding the notion that its stores only work at more than 100,000 square feet. After scrapping its smallest-store concept earlier this year, meant to compete with the dollar store chains, the world's largest retailer is focused on building out its Neighborhood Market footprint. These nearly 700 stores average closer to 40,000 square feet.
Unlike Target's small shops, Wal-Mart's Neighborhood Market stores tend to be located in more rural destinations. However, they're still closer to population centers than its superstores to appeal to shoppers who don't want to drive all the way out to those locations for a gallon of milk. Neighborhood Market stores allow Wal-Mart to capture additional, midweek spending from existing shoppers, and potentially steal share from local grocery stores.
Target, in contrast, is using its small shops to gain entry into cities that didn't have the available real estate to house its 100,000-plus-square-foot stores. By doing so, it's exposing its brand to a new group of shoppers.
Whereas the average Target store has historically counted 60,000 households with a median income of $74,000 in a three-mile radius, those numbers are edging higher as it opens more small shops, according to CoStar. Over the last three years, the average Target store has expanded its reach to 172,000 households in a three-mile radius, with a median household income in the range of $79,000.
Yet no matter how they get there, it's crucial that each retailer looks beyond their traditional formats, analysts said. Not only do these smaller stores provide more touch points for them to connect with shoppers, they enable these brands to more efficiently connect their physical and digital capabilities, such as their in-store pickup service.
"You're able to get to places where you normally might not get," Moody's analyst Charlie O'Shea said. "You extend the brand and you deepen the relationship with consumers."