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Retail Downsizing: Growing more by getting small?

Posted by Harrison Murphy on 1/23/14 9:17 AM

Many of the top big box retailers in the US are focusing on a strategy that may seem counterintuitive to their business model: going small. Historically, large companies such as Target or Wal-Mart were infamous for building up their massive stores in suburbs across America. With growth in these suburban markets experiencing a slowdown, companies are refocusing their efforts to the cramped spaces of city blocks. Recent census data has shown that for the first time in decades, cities across the US are growing faster than commuter towns and suburbs. By placing mini versions of their typical stores in urban areas, retailers hope to usher in a new era of domestic growth.

Bloomberg reported that one such company blazing the trail is Target. The company has built eight “CityTargets” in hip cities including Chicago, Seattle, Los Angeles, and San Francisco. These smaller format stores are anywhere from 30% to 50% the square footage of their regular locations, which can run over 126,000 square feet. Target hopes to serve cities’ younger professional residents who often have more discretionary income, as well as college students and tourists. This month, Target has begun to experiment with an even smaller location near the University of Minnesota campus, dubbed TargetExpress with a square footage of 20,000.

Target isn’t alone in this trend. Wal-Mart has toyed with smaller format stores for over a decade through their Wal-Mart Discount Center, Neighborhood Market, and Express locations, which it sees as a $12 billion market. Samsung and Microsoft have approached the smaller format in a different way by maintaining ‘mini-stores’ within Best Buy locations nationwide.

The hardest part for retailers in this new endeavor is making the best use of every available inch at their disposal. By analyzing foot traffic patterns and trends within the store, retailers can make informed decisions about the placement of products or displays. If data shows that shoppers aren’t making it to a certain location within the store, this is an indication that companies could downsize the square footage of the store even more while still maintaining the same amount of revenue and foot traffic.

Scanalytics is currently developing a major roll-out with a one of these companies expanding into the small format market. Uncovering insights into how customers are moving about the space and their interest with certain products can help the company to maximize the efficiency of their space. Even more, the company can drive sales at a higher level of customer service by alerting employees when certain visitors are lingering in front of a product or trigger coupons to display through interactive media.

Retailers who optimize their data through strategic analysis will maximize the output from their store - large or small.

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