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Three Ways Retailers Can Think Small to Increase Store Impact

Shira Petrack
December 16, 2022
Three Ways Retailers Can Think Small to Increase Store Impact

Brick-and-mortar stores serve a wide variety of functions. In addition to operating as a sales channel, offline stores support product and brand discovery, facilitate fulfillment and reverse logistics, and build customer engagement and loyalty. And when it comes to accomplishing these objectives, bigger isn’t always better – which is why many retailers are now going big by going small. Below, we look at three ways retail real estate executives can “think small” to optimize their retail footprint, grow their business, and stay competitive in a rapidly changing retail environment.

  1. Opening Small Format Stores to Reach Niche Segments 

There are plenty of reasons why companies have been leaning into small-format stores. Target, for example, has a typical store format that spans around 130,000 sq. ft. – but the chain also operates over 150 small-format stores, around 25 of which are located on or near college campuses and cater specifically to students. These campus-oriented Target stores range from around 13,000 sq. ft. to 40,000 sq. ft. and typically have a very small trade area that may overlap completely with the trade area of a nearby full-size Target store. Nevertheless, visits to campus-oriented Targets have skyrocketed in the past three years – even compared to the already high benchmark set by the brand’s full-size store fleet. 

Comparing the median age of visitors to Target nationwide with that of visitors to small-format near-campus locations also reveals that visitors to these locations tend to be much younger than visitors to Target nationwide. This shows that Target is benefitting twice from its campus-oriented stores. First, the company has succeeded in creating a shopping experience that caters specifically to college students, which is likely driving the success of these campus-oriented stores. And second, by cultivating positive engagement with younger customers, Target could be fostering continued brand loyalty for years to come. 

  1. Rightsizing to Curb Cannibalization 

Not all store closings are signs of a retail apocalypse. In fact, there is ample reason why the thinking about rightsizing needs to shift. Rightsizing has been classically seen as a softer terminology to discuss store closures. But there is a significant trend of rightsizing that is more focused on optimization. If a chain can reach the same audience with 80 stores that it can with 90, why not reduce the operational cost? If a brand can leverage a wider mix of store formats to better reach a specific market – this push can drive greater long term success. The process of rightsizing is about each retailer asking how to best deploy stores to accomplish its wider goals, and our interaction with the terminology needs to adapt accordingly.

In January 2021, Albertsons announced that it would be closing two Irvine, CA locations the following month. The two, now-closed grocery stores, had been located near three other Albertsons locations, and all five venues were operating roughly within 10 square miles of one another. Following the closures, the remaining three venues all saw an increase in their trade area size, as the still-open Albertsons stores absorbed some of the traffic that had previously gone to the closed properties. One branch located on Jeffrey Road saw its trade area grow from 24.9 square miles in Q4 2020 to 33.1 square miles in Q1 2022. 

In addition to the growth in trade area size, monthly visits to the still-open stores also increased following the closures. At the Albertsons location on Campus Drive, for example, year-over-three-year (Yo3Y) foot traffic in January and February 2021 was down 17.3% and 13.9%, respectively. But following the closures, visits to the Campus Drive location began to pick up and by May 2022, the location was seeing a 32.4% increase in visits relative to May 2019. 

Albertsons recently launched its own retail media network, so maximizing the reach of each branch is more important than ever. As the company continues to optimize its physical footprint and establish itself as a customer-driven business, Albertsons is on track to unlock the full potential of every store in its fleet. 

  1. Expansion Into Smaller Markets

When a large city sees 5,000 people moving in, it doesn’t affect the day-to-day flow of the city. However, when a small town sees an influx of newcomers, it can impact the way the city operates, the services it needs to provide, and the retail opportunities it presents.  

In recent years, a small but significant number of people chose to leave bigger cities for smaller towns, suburbs, or even rural areas. And because many of these areas had a relatively small pre-COVID population, even a small influx of new residents can have a dramatic influence on the local communities and businesses. 

Migration data shows the outsized impact that minor shifts in populations can have on smaller locales. We define small markets as states or metropolitan areas that are not one of the top 10 largest states or top 25 largest CBSAs by population size. (According to the United States Office of Management and Budget, metropolitan areas are CBSAs with at least one urbanized area of 50,000 or more) 

Over the past three years, the majority (17 out of 25) of metropolitan areas that saw the largest net population growth were small markets. Areas such as Salisbury, MD-DE; Jacksonville, FL; and Boise-City-Nampa, ID saw more people moving in than New York City, Chicago, and Los Angeles. And due to the small size of these fast-growing CBSAs, the impact of their population growth has been huge.

Small shifts in population have an outsized impact on smaller markets, and businesses that identify up-and-coming cities, counties, and states can see major growth while benefiting from less competition.

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