Investors largely expected the FOMC to cut rates by a quarter point.The Fedread more
As the Fed was meeting to consider cutting interest rates, it lost control of the very benchmark rate that it manages.Market Insiderread more
Federal Reserve Chairman Jerome Powell said the he does not see the Fed using negative interest rates in the future.The Fedread more
The decision to cut rates followed a monthslong pressure campaign by Trump, who often criticized Chairman Jerome Powell by name as he called for lower interest rates.Politicsread more
Steve Dowling, the head of Apple's public relations department, announced he will be leaving this week.Technologyread more
Tracy Britt Cool is leaving the firm after a decade to start a company that replicates Warren Buffett's business model, the Wall Street Journal reported.Marketsread more
Stocks closed little changed after the Federal Reserve failed to signal it will cut rates again in 2019, disappointing traders.US Marketsread more
A New York-based blockchain consulting firm allegedly extorted a Seattle-based crypto start-up with threats to hijack its initial coin offering, in a case announced Wednesday...Technologyread more
According to a report in the Wall Street Journal, WeWork co-founder Adam Neumann has floated the idea of becoming Israel's prime minister or leader of the world.Technologyread more
Powell said on Wednesday that the Fed may have to resume regular balance sheet growth to help ease money markets.The Fedread more
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."
Despite their differences, Wal-Mart's and Target's small shops share a few similar goals, said Craig Johnson, president of Customer Growth Partners. One of those is the desire to draw frequent, repeat visits from shoppers. Because these shops tend to be located in costlier markets — and lean more heavily on low-margin products such as grocery — they'll need that volume to churn a profit.
To bring in repeat shoppers, both small-store chains sell a mix of grocery, alcohol and high-velocity general merchandise, which needs to be replenished often, Johnson said. Most also feature pharmacies and a food and beverage component, which also drum up frequent visits. Target's Tribeca store, for example, includes a Chobani-branded yogurt cafe.
"They're each trying to address the small-basket shopping mission," Johnson said.
Both Wal-Mart and Target are likewise using their small shops to tie together their bricks-and-mortar presence with their online services. That includes marketing them as pickup points for digital orders.
"I don't think any retailer that is savvy and gets it is building new stores and not having at least almost a full one eye on where it fits in a multichannel strategy," O'Shea told CNBC. "Everybody's probably thinking that way and if not, they probably should be."
Even though these stores' small size will prohibit them from churning out the same volume as their larger counterparts — and in turn, generate a smaller return on invested capital — they can still be quite profitable, Johnson said.
Though neither retailer has shared details regarding the profitability of their respective small stores, comparable sales growth at Wal-Mart's Neighborhood Market stores has been easily outpacing its overall figures. During the fiscal second quarter, same-store sales at Neighborhood Markets increased 6.5 percent, compared with 1.6 percent overall growth at Wal-Mart's U.S. fleet.
Target does not break out the financials for its small stores, though it has said they generate higher sales per square foot and more frequent footfall.
Yet investors shouldn't spend too much time comparing the performance at the company's various store formats, O'Shea cautioned. Similar to how digital sales work in tandem with bricks-and-mortar, both of these formats serve their own role in each company's ecosystem, he said.
In Wal-Mart's case, if a Neighborhood Market store steals $20 million in revenue from a $100 million a year supercenter, but brings in an additional $40 million, it's nonetheless grabbing share from a competitor.
"It's additive overall and that's what I think you have to focus on," he said.
Both Target and Wal-Mart are playing to their traditional strengths to grow their small-store footprint. Target's "tarjay" image resonates well with urban shoppers, whereas Wal-Mart built its brand catering to deal-seeking rural customers, O'Shea said.
By locating its shops in dense, urban markets, Target has the opportunity to attract a broader swath of shoppers — in some cases with a higher income, CoStar's senior real estate economist, Ryan McCullough, said.
"Generally speaking, urban areas are growing faster with respect to populations," he said, adding that these communities are "really the only place that we've seen household incomes rise over the past 15 years on a real basis."
Yet with that opportunity comes challenges. City space is hard to come by, thanks to limited building and supply. It's also pricey. Though Target declined to share details on the terms of its rent, ground floor space in lower Manhattan cost an average $294 per square foot as of the second quarter, according to CBRE.
"Rents are in large part a function of store productivity," McCullough said. "They're able to charge higher rents because in general their tenants are doing more in sales."
Indeed, Target's Tribeca location is just a short walk from the reimagined World Trade Center area. Roughly 60,000 residents live in downtown Manhattan, and have a median household income of $134,756, according to the latest data from the Alliance for Downtown New York.
For Wal-Mart, the economics of large cities have so far kept it at bay, executives said at its shareholders meeting this summer. Because Wal-Mart's value proposition hinges on offering shoppers the lowest price, it would be difficult to churn a profit in such an expensive market. As such, it has no intentions of bringing a Neighborhood Market to Manhattan anytime soon, the company said.
The world's largest retailer has already scrapped one of its small-store concepts, Wal-Mart Express. At around 15,000 square feet, these shops were designed to compete against the rapidly expanding dollar store players.
Customer Growth Partners' Johnson said the logistics of these small stores proved too difficult to match with the retailer's existing supply chain, which was built upon unloading the contents of 18-wheel trucks into large stores.
Wal-Mart CEO Doug McMillon told reporters in June that the company abandoned the roughly 100-store concept, which it started piloting in 2011, to focus on its larger supercenters.
"We can't do everything," McMillon said.
For both retailers, the idea of small stores is relatively nascent. At Wal-Mart, supercenters still outnumber Neighborhood Markets 5 to 1. And for Target, its small stores represent less than 2 percent of its overall base.
Analysts, however, have no doubt these stores will play a more crucial role in each retailers' financials moving forward — and eventually, cause them to compete head-to-head in multiple markets. Yet the growth of these formats won't spell the demise of the companies' big-box stores, Johnson said.
"I don't think there'll be any extraordinary closures of the large-format stores," he said. But with new store growth skewing toward these shops, "there will be a higher representation from the smaller-format stores with each passing year."