Can Walmart, Target Adapt to Smaller Stores?

It seems like every big-box retailer out there is looking to size down store sizes in efforts to grow in urban areas. Walmart is focusing on smaller stores. Target kind of has plans to do the same. Home Depot is already incorporating the strategy.

On the surface, it makes sense. Even with higher real estate costs, these chains are moving into high-density areas with significant household incomes.

A Reuters article recently interviews some industry observers who bring up a good point, though: Can Walmart, Target and others execute with smaller stores? The chains “need to figure out how to make money if they cannot stock as many high-profit margin goods, like clothes, to offset brisk sales of low-margin items, like pasta sauce,” the report says.

We would think that companies such as these could make that balance work, but their expansion into urban locales is admittedly slow. Are big boxes on the right track making a push with smaller stores, or are the hurdles too high?

ALSO: Tractor Supply’s Expansion Plows Through Recession

5 Responses to “Can Walmart, Target Adapt to Smaller Stores?”

  1. 1 Timothy Fenwick February 4, 2010 at 9:46 am

    In Europe Carrefour, Auchan and Tesco have all tried this with varying degrees of success.
    Assortment, logistics, pricing all have to be very different, and may easily be got wrong.

  2. 2 James February 4, 2010 at 10:08 am

    The good thing about urban locations is that the demographic is very well known and unlikely to change much over the ensuing decade or two. If these stores can develop a long term perspective the hurdles to inter urban-development won’t look so high. The people are there and they have unmet retail needs. The scale of everything is smaller than at suburban locations, the population lives at a pedistrian street level, not at 70 MPH freeway level. Moving purchased goods from a store to home is a major issue. The store needs to develop a tier system for moving goods,from shopping carts, to product bins, to automobile trunks.
    The stores will be multi-level which mandates new merchandising techniques and a variety of people movers.
    Development cost will be high, but once there it will be that much more difficult for a competitor to move in, unlike suburbia.
    I hope retailers will view this as an interesting challenge and an incredible opportunity. We are becoming much more frugal as a nation and transportation difficulties will only increase as time goes by, this is a great chance to open a new market.

    • 3 Howard February 4, 2010 at 11:19 am

      So now the category killers revert abck to amore workable format and we give birth once againt o independent retailers that have the ability to react to the customers wants and needs, whicle delivering good old fashioned service. This may completely change the retail environment and the landlscape and give the market an opportunity to fill many of those empty spaces with creative and innovative concpets that cater to the customer. Wouldn’t it be nice to be able to go into stores and find goods in one that you do not see in all the others? It would make shopping an enjoyable and entaining experience once again.

  3. 4 James February 5, 2010 at 9:12 am

    If urban stores are going to be successful they will have to exceed their customers expectations in customer service and product mix. We located a mid size sporting goods store in the Seattle area and they found that they had to re-stock their store with higher quality items, the low cost stuff was not moving while the name brand high ticket items were flying out the door. If you go to any small town in America there will likely be a locally own IGA store, those stores are a great model for what an inter-urban grocery store needs to be, 12k to 18k SF with a really unique mix of grocerys and other products tuned to the neighborhood. Essentially an urban neighborhood is more like a small town than it is like suburbia. Another good model is ACE Hardware, although even their store would have to be scaled back to meet urban custmers needs.

  4. 5 TooCostly February 8, 2010 at 1:43 pm

    A marginally successful smaller concept in high occupancy cost metropolitan areas is no way to launch big boxes; particularly, in this economic environment. Until the day heralds, when landlords have adjusted their rental income projections downwards, there is little hope for these smaller concept ideas, unless launched as a subsidiary concept with completely new metrics.

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