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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 incorporating small-format stores into their fleets.
There are plenty of reasons why companies have been leaning into small-format stores. 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.
Retailers can tailor small-format stores to target a specific demographic, create a personalized shopping experience, or experiment with a new brand direction.
This white paper analyzes four leading retailers who are shrinking their store size to see how smaller stores can affect visits, dwell time, and loyalty. Keep reading to discover how small-format stores can help retailers better serve their customers while complementing existing store formats within their fleet.
One purpose of small-format stores is to increase operational efficiency. By managing smaller stores, retailers can offer local customers a brick-and-mortar channel while reducing their overhead costs. Our recent rightsizing white paper highlighted Barnes & Noble, which unveiled its first small-format store in 2018. Foot traffic data showed that the company’s small stores saw more visits per square foot than neighboring, full-size stores, allowing Barnes & Noble to lower overhead costs without sacrificing customer reach.
Now, the trend of rightsizing by resizing stores is picking up steam. In May 2022, discount shoe retailer DSW opened a small-format store, dubbed “Warehouse Reimagined,” in Hedwig Village, Houston, TX. This new concept is about 15,000 sq. ft. – a little under two-thirds the size of a traditional, 25,000 sq. ft. DSW location.
The smaller-format DSW store is attracting significantly more visits per square foot than neighboring DSWs. In Q3 2022, the Hedwig Village location received 3.4 visits per square foot, while the Post Oak Boulevard store 8.4 miles away drew 2.1 visits and the Westheimer Road location, 4.5 miles away, saw only 1.1 visits per square foot.
The new format allowed DSW to take up a smaller parcel within the Hedwig Village shopping center while using its store space more efficiently and promoting greater customer density – one of the many benefits that small-format stores offer retailers.
Small-store formats can also help retailers offer a curated product selection to specific audiences. Target, one of the most popular shopping destinations in the country, has a typical store format that spans around 130,000 sq. ft, but the chain has been incorporating small-format stores into its fleet since 2012.
Today, the chain 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 carry products a typical college student might need – grab-and-go food, dorm room furnishings, toiletries, and school supplies. The campus stores can also serve as e-commerce pickup points for students, many of whom are particularly comfortable with online shopping.
Target’s foray into small-format stores shows that retailers of all sizes and strengths can benefit from this trend.
Target as a whole is already one of the strongest retailers in the brick-and-mortar space – but foot traffic data indicates that the company’s small-format stores are performing even better. Target’s foray into small-format stores shows that retailers of all sizes and strengths can benefit from this trend.
Target has been seeing elevated year-over-three-year (Yo3Y) foot traffic nationwide, and its small-format college campus stores are outperforming the company’s already impressive nationwide average. The regular-sized stores saw 15.1% growth in that Q3 2022 while small-format stores saw Yo3Y foot traffic growth of 35.7% in that same quarter, highlighting the success of this concept.
And unsurprisingly, the median age at these college stores skews young. The median age of Target visitors nationwide is approximately 35, while visitors to the campus-oriented stores have a median age of 28.9 – which may mean 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.
The relatively small and overlapping trade area is another notable aspect of Target’s small-format campus stores. Most visitors to the small-format Target near Ohio State University reside within 4.2 square miles of the store. In contrast, two nearby full-size Target locations in Columbus, OH, had true trade areas of 22.8 and 29.3 square miles between January and September 2022. And the trade area of the Ohio State University small-format Target is not just smaller – it is entirely subsumed within the trade areas of the larger, nearby Targets, making the success of the small-format campus store even more impressive.
The campus Target stores succeeded in attracting a new customer base within an area already served by multiple stores.
Attracting a new customer base within an area served by multiple stores is no easy task, and the campus Target stores did just that by carving out a new customer segment within Target’s trade area. And despite the overlap with nearby, larger Targets, the campus stores had higher Yo3Y visits than full-size locations.
Similar patterns repeated in Tallahassee, FL, where the Florida State University campus Target had a trade area of 9.2 square miles, compared to two regular-sized Tallahassee Target’s with trade areas of 70.5 and 89 square miles. Like Ohio State University, the FSU campus Target’s trade area is fully inside the other Tallahassee Target’s trade areas while still outperforming the other Target’s Yo3Y foot traffic.
Target’s success with its campus stores highlights how retailers can make use of small-format stores to reach new audiences.
Operating smaller stores can also help retailers experiment with new brand concepts. One grocer recently did just that by adding a new store concept that doubles down on shopper experience.
Publix, an employee-owned grocery chain headquartered in Lakeland, FL, boasts over 1,300 locations across the Southeast. The company also operates the GreenWise brand, which focuses on natural and organic foods along with specialty items. Publix had attempted to launch a GreenWise small-format store in 2007, but eventually chose to integrate the brand’s products into its already-existing stores. In 2018, the chain decided to reintroduce its GreenWise Market by Publix concept as a stand-alone, small-format grocery store, each standing at around 26,000 sq. ft.
GreenWise stores carry a highly curated product selection while offering a premium shopping experience with details such as carts with cup holders that allow customers to “sip and shop.” Stores are divided into “experience zones,” including CARE – a beauty and wellness department, and CUTS, a hormone-free meat and sustainable seafood counter. GreenWise also focuses on encouraging community gatherings through its health and fitness events.
Customers appreciate these thoughtfully curated offerings – September visits to GreenWise in Florida were up 6.4% YoY.
Customers seem to appreciate these thoughtfully curated offerings – year-over-year (YoY) visits to GreenWise in Florida saw visits up 6.4% in September, while Florida Publix stores saw 3.9% fewer visits than in September 2021.
Increased visits aren’t the only metric showcasing GreenWise’s success – shoppers at GreenWise stores also stay longer than the typical Publix shopper. GreenWise’s efforts to create a positive shopper experience and promote in-store events is a likely driver of these extended visits.
The difference in dwell times was significant when comparing GreenWise stores to neighboring Publix locations. Median dwell time for the local GreenWise in Ponte Vedra, FL, stood at 30 minutes, while three nearby Publix locations saw median dwell times of 27, 24, and 26 minutes. The GreenWise store offers a variety of community events, such as their Free Sundae Monday, likely driving longer dwell times.
The Ponte Vedra Beach GreenWise also drew significantly higher foot traffic than the neighboring Publix, with September 2022 seeing a 31.8% YoY increase in visits. Meanwhile, in the same month, visits to the nearby Publix stores on Front Street and Palm Valley Road grew just 7.6% and 13.5% YoY, respectively. A third Publix on Marketside Avenue, a three minute drive from GreenWise, saw its YoY visits decline by 13.3% in September 2022.
By using the small-format concept, Publix is setting GreenWise apart and offering customers a premium grocery experience without impacting the wider Publix brand.
Similar to Ponte Vedra Beach, a GreenWise Market in Odessa, FL (which opened in June 2020, the same month the Ponte Vedra Beach location opened) saw a median dwell time of 28 minutes, while the median dwell time at three neighboring locations stood at 26, 25, and 24 minutes. Like the Ponte Vedra Beach location, the Odessa GreenWise store also runs community events – in this case, fitness classes led by South Florida-based wellness and event marketing firm Mind Body Social – which likely contributes to the longer dwell times. By using the small-format concept, Publix is setting GreenWise apart and offering customers a premium grocery experience without impacting the wider Publix brand.
The success of GreenWise by Publix shows how companies can use small-format stores to experiment with brand concepts and offer experiences that are more complex and costly to provide in larger venues. By curating a shopper experience unmatched by that of larger, perhaps more traditional grocery stores, GreenWise can foster a sense of community – and encourage longer visits.
GreenWise created a shopper experience that encourages longer dwell times and community growth. But some customers prefer to complete a shopping mission quickly and easily – and small-format stores can also help these shoppers fulfill this objective.
Enter Market by Macy’s, a small-format department store launched by Macy’s in 2020 as part of a larger restructuring strategy. Market by Macy’s offers a curated array of merchandise with the goal of creating a streamlined shopping experience that gives customers the advantages of department-store shopping in an easier-to-navigate configuration. Since opening, the chain has expanded to seven locations, with one more slated to open by the end of 2022.
In Snellville, GA, month-over-month (MoM) visits for the Market by Macy’s location were up 11.5% in October 2022.
So far, the concept has met with success. In Snellville, GA, month-over-month (MoM) visits for the Market by Macy’s location were up 11.5% in October 2022, while foot traffic for Macy’s in the Atlanta CBSA and state-wide in Georgia were up just 4.5% and 5.6%, respectively, in the same period. The same pattern repeated in Texas, where MoM visits to the Flower Mound Market by Macy’s in September and October jumped considerably higher than Macy’s visits in the Dallas-Fort Worth-Arlington CBSA or Texas-wide in the same period.
Unlike Publix’s small-format Greenwise stores, which are designed to foster a sense of community and promote a more luxurious shopping experience, the small-format Market by Macy’s aims to make shopping “quick & easy.” So whereas GreenWise’s performance may be measured by how long shoppers stay in-store, Market by Macy’s success depends on facilitating a quick and easy shopping experience.
Median dwell times indicate that Market by Macy’s is indeed helping customers get in and out more quickly.
Comparing median dwell time for Market by Macy’s with dwell times for Macy’s larger format stores indicate that Market by Macy’s is indeed helping customers get in and out more quickly. The median dwell time to the Market by Macy’s location in Snellville, GA, was 31 minutes. In comparison, full-sized Macy’s stores in the Atlanta, GA, area had dwell times of 39 minutes, while the median visit time for Macy’s Georgia-wide was 38 minutes.
And diving into demographics indicates that the more streamlined shopping experience attracts a customer base that is both financially stable and loyal. Residents of the trade area of Snellville, GA’s Market by Macy’s have a relatively high median household income (HHI) of $69,175, in contrast to Macy’s shoppers in the Atlanta CBSA and in Georgia state who have HHIs of $62,814 and $60,761, respectively. The Snellville Market by Macy’s trade area also has a higher percentage of Gen X consumers, a customer base with an affinity for loyalty.
Similar trends repeated at the Market by Macy’s in Flower Mound, TX. Median dwell time for the store stood at 30 minutes, while the median dwell time for the regular-sized Macy’s in both the Dallas, TX CBSA and the entire state of Texas were 37 minutes. And much like the Market by Macy’s in Snellville, the Flower Mound Macy’s attracts a larger share of brand-loyal Gen X shoppers with a higher median HHI than Macy’s shoppers across Dallas and the state of Texas.
Market by Macy’s allows Macy’s to cater to visitors looking for a fast and convenient shopping experience that is not offered by the company’s full-size department stores. By launching its small-store format, Macy’s can bring a particularly important consumer segment back to its stores without sacrificing the one-stop-shop concept of its full-size locations.
Small Stores Lead to Large Success
DSW, Target, Publix, and Macy’s all highlight how small-format stores can complement existing store fleets, reach new consumer segments, offer a more curated shopping experience, and increase visitor density while reducing overhead costs. As the retail landscape continues to evolve, companies can use small-format stores to continue developing their brick-and-mortar channels while adapting to shifting consumer behaviors.
Smaller stores can increase visitor density, enabling greater efficiency in areas where large format stores don’t fit or are cost prohibitive. DSW’s small store formats provide customers with a reimagined shopping experience while lowering overhead costs. So far, the response has been positive – visits per square foot were significantly higher in the small-format DSW store.
Retailers can use smaller stores to cater to key demographic segments. Target’s small-format campus stores, which serve as one-stop-shops for college students, have found a receptive audience – even though many of the campuses are already served by nearby full-sized Targets. The chain’s campus stores may also be creating life-long customers with this early, positive exposure to the brand.
Small-format stores can offer more experiential retail possibilities by focusing on specific audiences. GreenWise Market by Publix has moved beyond a specialty grocer to a community hub. The store aims to curate an inviting shopping experience that encourages longer visits and communal engagement. It seems to be resonating with its intended audience, with dwell times to GreenWise Markets longer than nearby Publix locations.
Companies can draw on smaller stores to double down on convenience. Macy’s bet customers would respond to a slimmed-down experience that prioritized speed and convenience – and it proved true. Market by Macy’s shoppers were in and out of the store much quicker than visitors to traditional Macy’s, signifying that successful shopping missions were completed with ease.
