Commentary

Target Targets Millennials With Small, 'Flexible Format' Stores

Target is opening four small stores today including a 45,000-square-foot shop in Manhattan’s Tribeca neighborhood, a short walk from the World Trade Center. They represent additional forays onto the smaller-footprint path that Walmart walked for a while before getting back on the well-trod boulevard of big boxes in the ’burbs and boonies. 

In all, the Minneapolis-based chain now has 27 “flexible format” stores, as it refers to them, and 1,772 large ones of at least 120,000 square feet.

“Downtown Manhattan residents who refuse to schlep all the way to Brooklyn, Harlem or Queens will now be able to shop at one of the country's largest retailers without hopping on the subway,” writes CNBC’s Krystina Gustafson.

“Because it caters to urban living, the store will forego large furniture in favor of a full aisle of air mattresses. Instead of 24-packs of toilet paper meant for stocking up, visitors will be offered grab-and-go items from food to electronics,” Gustafson continues. “And in place of your typical cookie-cutter food and beverage cafe, the Tribeca shop will be home to the Chobani yogurt company's second cafe.”

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Whether they become destination-dining spots, as Ikea’s have become, remains to be seen.

“Target is attempting to succeed where others have struggled, a sign of the limited options for brick-and-mortar retailers competing with e-commerce. Wal-Mart Stores retreated from a similar experiment earlier this year, closing more than 100 of its smaller Wal-Mart Express locations to focus on its massive SuperCenters and grocery-store-style Neighborhood Market formats,” observes Khadeeja Safdar for the Wall Street Journal.

“Unlike Wal-Mart, which opened its Express stores largely in suburban and rural locations, Target is focusing on densely populated urban areas and customizing the assortment in each store to cater to local tastes.”

The three other flexible-format stores opening today are in Philadelphia, Cupertino, Calif., and State College, Pa., the home of Penn State.

“The new smaller-format stores are a way of reaching customers who might otherwise have trouble becoming Target stalwarts. Of the 15 new stores Target is opening this year, 14 will be the smaller, more curated models,” reports Charisse Jones for USA Today.

“A traditional Target store would have an automotive department and here in Tribeca we know people aren’t driving,” Tony Roman, Target senior group vice president, tells Jones. 

“He added the company hopes the more tailored experience of the smaller, brick-and-mortar stores will entice people to actually come through the doors rather than simply shopping online,” Jones writes. “‘We want our guests to shop (online) at Target.com,’ he says, ‘but you can’t beat the in-store experience.’”

“These stores are bringing us into new neighborhoods and to college campuses across the country, expanding our footprint in cities like New York, Philadelphia, Boston and Chicago,” chairman and CEO Brian Cornell tellsTheStreet’sBrian Sozzi. “We've been really pleased with the stores' performance — sales productivity in these stores is much higher than the company average and flexible formats consistently meet or exceed their profitability targets.” 

“The TriBeCa store … will have a much bigger focus on baby and kids’ merchandise and on the trendier elements of Target’s apparel offerings, aimed at the abundance of affluent young families in the area,” writes Phil Wahba for Fortune. “In contrast, Target stores near university campuses offer fewer toys, but emphasize categories like electronics and processed food of the kind college students inhale.”

And, WSJ’s Safdar reports, Ping-Pong balls are near the beer.

Although the move to smaller stores “may help the company expand to new, small areas, it also indicates that the company cannot expand any more in the domestic market via its traditional large stores,” suggestsSeeking Alpha contributor Aristofanis Papadatos. “In other words, this move confirms that the easy growth has already been achieved in the domestic market, which does not bode well for the future growth of the company,” he writes in an analysis of Q2 results. 

Target reported a second quarter 2016 comparable sales decrease of 1.1% on Aug. 17.

Indeed, “with Target’s sales suddenly slumping again, the company has a lot riding on this format succeeding,” observes Fortune’s Wahba, reporting that CEO Cornell says 25 more are coming by 2018 and there eventually could be “hundreds” of them dotting neighborhoods where abandoned grocery stores and pharmacies once stood.

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