Target Corp. will reach a significant milestone this year: For the first time, it will open more smaller stores than big boxes.
It's part of a sea change in retail as companies such as Target and Wal-Mart that saturated the suburbs with supersized stores in the 1980s and 1990s are slimming down to fit denser urban areas.
Wal-Mart actually reached this turning point first. In the last year, it opened about 240 smaller format stores compared to 120 supercenters. Its executives have told investors to expect that trend to continue this year.
Target, which opened its first CityTarget in 2012, is newer to the small-store game. Of the 16 new stores it opened last year, only one was a small store: the first 20,000-square-foot TargetExpress store in the chain, which opened near the University of Minnesota in July.
But Monday, the Minneapolis-based retailer said this year it will open nine smaller-format stores and six big-box stores.
"For these big, mature retailers, there's just nowhere else to go with their full, general merchandise stores," said Brian Yarbrough, an analyst with Edward Jones.
"They can expand or renovate some, or move them to new locations. But there's just not enough markets to open new [big] stores."
In the meantime, big-box stores have been losing marketshare to dollar stores, which have done a good job of attracting a loyal following in more urban areas for fill-in trips, Yarbrough said. So by opening these smaller stores, Target and Wal-Mart could win back some of those customers.
Smaller store formats have been of particular interest to Target CEO Brian Cornell, who has pointed to TargetExpress and CityTarget as engines for future growth, especially as the retailer closes the chapter on Canada. After initially viewing Canada as a bright prospect for growth, Target will soon close its 133 stores north of the border after sustaining about $2 billion in losses there in less than two years.
While Target is accelerating its growth of smaller stores, it has slowed overall new store openings. This last year, it closed more stores than it opened.
But it's probably wise to be a little more conservative since Target is still working to revive sluggish sales and is still perfecting the smaller formats, Yarbrough added.
"It makes sense to be prudent, especially after Canada," he said.
Of the new stores it will open this year, Target said Monday that three of them will be TargetExpress stores — one in Chicago and two in the Washington, D.C., area. TargetExpress is the retailer's smallest store format and is about one-sixth the size of its traditional big-box store.
The company had already announced five other new TargetExpress locations for this year — one in St. Paul's Highland Park, three in the San Francisco area and one in San Diego. As for future sites for its smallest stores, Target said it is exploring markets like Philadelphia and Los Angeles.
"Each TargetExpress will be different," said Erika Winkels, a Target spokeswoman.
The retailer has already been tweaking the assortment at its Dinkytown store, adding items the largely college student population has been asking for such as baking supplies, sunglasses and yoga pants. The store otherwise did not have much in terms of apparel other than Gophers gear.
While that store has a small selection of baby products, other TargetExpress stores could have more depending on the local demographics, she added.
Target had already said it would bring its midsize store format, CityTarget, to the East Coast this year with a store set to open in Boston near Fenway Park. It has another location slated for Brooklyn, N.Y., next year. The retailer operates eight CityTarget stores in cities such as Chicago, Los Angeles, and Portland.
Going forward, even the new big-box stores will get some local flavor. The two new Target stores coming to Hawaii — one on Oahu and the other on Maui — will sell local delicacies such as kalua pig and Hawaiian coffee.
Target has about 1,800 stores in the U.S., compared to Wal-Mart's 4,400.