Retail Midwest

Nimbler retailers turning to small-format stores for a boost

Nimble retailers turning to small-format stores,ph01
Target and other retailers are opening smaller stores to meet the changing demands of shoppers.

The reactions when former retail king Sears filed for Chapter 11 bankruptcy earlier this month were predictable, with pundits pointing to the filing as more evidence that physical retail is dying. But not all retailers face the same fate as Sears. Many continue to adapt to the changing shopping habits of consumers.

And one approach that is already proving successful? The small-format store.

Retailers across the country are opening smaller versions of their typical big-box stores, usually in densely populated urban areas. The stores feature a more limited selection and, of course, less square footage. More importantly, they have been successful, with consumers flocking to them for quick trips to pick up milk, laundry soap, dog food or whatever else they need to fill their empty kitchen cabinets.

A good example of this concept in the Midwest is happening now in West Lafayette, Indiana. Chicago developer South Street Capital recently signed a deal to develop a small-format Target near the Purdue University campus in that city. The store, which will be built in 2019, will be just 11,800 square feet and will be Target’s first small-format store in Indiana.

And everyone involved? They expect it to be a big success.

One of the reason for this is the dense population around the store’s new location at 304 W. State St. in West Lafayette.

“This store location is at the best corner in the entire market,” said Marc Muinzer, founder of South Street Capital. “It is surrounded by one of the most densely populated areas in the state of Indiana. Drop a pin on the map, and this is the best corner for Target to have chosen.”

The store will serve the students at nearby Purdue University. That bodes well for its success. The enrollment at Purdue is now more than 40,000 students. This figure has never been higher, so this appears to be the perfect time for Target to open a small-format store, stocking the items that college students need most.

Muinzer said that Target isn’t the only retailer focusing on small-format stores. This store type has proven to be successful, so more retailers are planning to open them.

“This is the trend,” Muinzer said. “Retail tenants are moving away from the big-box format. Everything we are seeing is trending toward the small-format end of the spectrum. I think we are still at the early stages of this trend, and that you’ll only see more of these stores.”

Michele Krause agrees. She is a partner at the Chicago office of law firm Ginsberg Jacobs, the firm that represented South Street Capital in its West Lafayette deal. She said that the small-format style has become a proven formula for retailers hoping to satisfy the changing shopping habits of consumers.

“Everyone is trying to think outside the box,” Krause said. “All retailers need to be creative today.”

Krause said that many retailers no longer need the overhead of 130,000-square-foot stores, particularly in urban areas or locations near busy college campuses.

“The small-format stores are a good way to attract their customer base and get their customers the goods and services they need,” Krause said. “At the same time, they are not taking on the risk of operating an inordinate amount of retail space that they don’t necessarily need.”

This is a change. Not too long ago, retailers were focused on opening the super-store format, usually in suburban locations, Krause said. Those stores will still exist, and new ones will still open. But retailers like Target will also continue to explore small-format opportunities, Krause said.

“These stores have been extremely successful for Target,” Krause said. “Target has found that these smaller stores have been a boost for them.”

The Target in West Lafayette is part of a mixed-use development featuring four stories of apartment units on top of the retail store. Muinzer says that the Target will be open by the start of the next school year at Purdue.

Target officials are eager for the store to open. The retailer says it plans to operate 130 small-format stores by the end of 2019.

The West Lafayette small-format store will feature an assortment of beauty products; a food-and-beverage section with a focus on grab-and-go items; and an assortment of dorm and apartment items.

The store will also offer Target’s order pick-up service. Shoppers can buy online and then pick up their items in the store.