What’s the big deal with small-format retail?

Whether it’s to fill a niche in suburban towns, plug into urban markets or meet the needs of college communities, many retailers – from traditional “big-box” to grocers and more – are adjusting their store models by shifting to smaller-format stores that occupy a fraction of the square footage of their traditional store models.

“There are plenty of reasons why companies have been leaning into small-format stores,” reads a November report released by Placer.ai. “Retailers can tailor these small-format stores to target a specific demographic, create a personalized shopping experience, or experiment with a new brand direction. Small-format stores can also serve as fulfillment centers for click-and-pay shopping and as a location for returns, all while fostering brand awareness and customer engagement. And thanks to their smaller size, these stores can help companies expand their reach in urban centers and other highly-priced real estate markets while lowering overhead costs.”

Smaller stores also benefit retailers by offering lower overhead, writes Jia Wertz for Forbes.

“With the right mix of product in-store, a smaller format store can often mean a more efficient sales strategy,” Wertz writes. “Even with a smaller footprint, stores bring the same brand awareness to neighborhoods, offer customers convenience with buy online and pick-up in store … and offer a personalized in-person shopping experience. And often these stores can open in areas where they wouldn’t otherwise have the ability to do so if it weren’t for the reduced store size.”

Here is a sampling of retailers operating small-format stores.

Traditional retailers

Target

Target began testing its current smaller store format in Minneapolis in 2014 and has since used the design for locations as, “their flexible designs let us bring the best of the Bullseye into urban neighborhoods, near colleges and other areas where a full-size Target wouldn’t fit, so we can serve up easy and inspiring shopping experiences for new guests across the country,” the company released in a statement. The retailer’s plans to open 30 new stores this year include additional smaller- to mid-size locations in suburban locations as well as in city centers.

Walmart

In addition to its smaller-format Neighborhood Markets, Walmart debuted a small-format general store last year, in partnership with cabin retreat company Getaway. The partnership resulted in a total of five small-format, 75-square-foot general stores on Getaway properties across the US – all of which feature specially curated outdoor gear and food items such as ingredients for s’mores and are also available for purchase through a Getaway link on Walmart.com.

Macy’s

Macy’s eight Market by Macy’s and two Bloomies smaller-format shops are performing well and, “ “play an integral role in supporting our omnichannel ecosystem,” Macy’s CEO Jeff Gennette said this week, as quoted by PYMNTS. The shops are typically 20% of the size of a traditional Macy’s or Bloomingdale’s store and, according to Gennette, outperformed the traditional stores by a significant margin in the fourth quarter of 2022.

The Container Store

The Container Store is increasing its investment in smaller stores across the US following the successful opening of its first such store in Colorado Springs, Colo., last fall, according to CoStar. That store, “continues to exceed our sales productivity expectations,” President and CEO Satish Malhotra said, adding, “It’s so encouraging to see that we’re tracking a lot of new customers. It just gives us a lot of confidence, as we think about the stores that we’re going to open for fiscal 2023.”

Ikea

Ikea’s 8,000 to 9,000-square-foot Planning Studios were designed to expand the Swedish home furnishing retailer’s reach into untapped markets that are not suitable for its larger stores, according to Modern Retail. In the US, Planning Studios opened in Los Angeles and New York City in addition to international locations in Paris, Moscow and Toronto. Additional stores are slated for Rome, Tokyo and San Francisco, Modern Retail reports.

“As we expand across the US, we’re definitely looking at the best, what we call, customer meeting points that fit that community. So [we are looking at] where we can come in and really give the total experience — from plan, design and take away — or… have a more catered experience like the Planning Studio that can really go after areas of the home that need more attention,” Selwyn Crittendon, business development manager at Ikea US said in an interview with Modern Retail.

Grocers

Meijer

Earlier this year, Midwestern retailer Meijer opened the first two of its new smaller-format Meijer Grocery stores near Detroit. The stores’ condensed footprints of 75,000 to 90,000 square feet are a fraction of the retailer’s traditional store footprints which range from 150,000 to 250,000 square feet. According to Meijer, the stores focus on “providing a streamlined shopping experience for day-to-day needs” and offer convenient checkout options that include self-checkout lanes and Shop & Scan payment options in addition to traditional checkout lanes.

Publix’s Greenwise Market

Publix-owned Greenwise Market experienced an increase in foot traffic at all of its Florida locations last year and, according to a Placer.ai report, customers tend to linger longer in the smaller-format stores which are usually around 25,000 square feet and focus on organic, natural and prepared foods.

Sprouts Farmers Market

Sprouts Farmers Market opened nine new smaller-format stores last year and has plans to transition to more such stores in the coming year, according to CFO Chip Molloy. “Back in early 2020, we considered closing some underperforming locations as we switch to smaller and more productive prototypes but we decided not to close those stores as the pandemic struck,” Molloy is quoted in Progressive Grocer, adding that, “We recently revisited that decision and we plan to close 11 stores in 2023. Those stores, on average, are 30% larger than our current prototype and generate negative cash flow.”

Big Y Foods

Big Y Foods announced last year it will open a smaller “downtown format” store in Springfield, Mass., this year, named Big Y Express Fresh Market. The 10,000-square-foot store will be about one-fifth the size of an average Big Y World Class Market store, and, according to Supermarket News, the concept will feature staple grocery items as well as natural and organic products and prepared meals, including sushi made by an on-site sushi chef.

Others

BJ’s Wholesale Club

BJ’s Wholesale Club opened a smaller concept last year in Warwick, R.I., that, at 43,000 square feet, is half the size of a traditional BJ’s club. In addition to offering convenient fresh foods, the location serves as a testing site for displays, product demonstrations, convenience programs and product lineups, according to Progressive Grocer. “BJ’s market will serve as an exciting new innovation lab for BJ’s Wholesale Club,” BJ’s Executive Vice President of Strategy and Development Bill Werner, said. “We are bringing the same great savings and value our members know and love, but delivering a convenient location closer to home.”

Rite Aid

Rite Aid opened a 3,000-square-foot store in Craigsville, Va., last year as part of a pilot program to expand pharmacy services access to more communities, and additional locations are scheduled to open this year. The new stores, which are about one-fifth the size of a typical Rite Aid store, will have pharmacists and pharmacy technicians on staff, according to Supermarket News.