IKEA's & Target's Strategy to Open Smaller Stores in Big Cities to Drive Growth

IKEA City Centre Store in Manhattan New York, credit: IKEA

IKEA City Centre Store in Manhattan New York, credit: IKEA

 

By Tricia McKinnon

In an online world what is the optimal store size? From Nordstrom to IKEA to Target retailers are executing a strategy focused on opening smaller store formats.  Smaller stores can provide a better customer experience as customers do not have to wander through a 100,000+ sq. ft store to find a sales associate or the product that they are looking for.  These stores also allow retailers to locate in densely populated areas closer to the customers that they are serving.  IKEA has long been known for catering to customers that live in small spaces in urban centres but has located its stores far from city centres.  Now that it is changing.  IKEA is locating more stores closer to its customers that reside in downtown locations.  

For similar reasons Target is also focusing on city centres.  Its smaller stores in highly dense areas are highly productive and allow the retailer to tap into growing urban communities.  With growing city populations and dwindling car ownership rates you just might see more retailers like IKEA and Target opening smaller stores in a city centre near you.  Here are the features of the smaller stores that IKEA and Target are opening that you should take notice of.

1. In April of this year IKEA opened its first city centre store within the US in New York City.  The 17,000 sq. ft three storey store, located on the Upper East Side, is significantly smaller than the average IKEA store that comes in at approximately 300,000 sq. ft. In this store customers can book design planning sessions with IKEA staff where IKEA hopes that based on the in-store consultation customers will pick out items that will be delivered to the customers’ home at a later time.  Customers shopping at the IKEA store in NYC also receive discounted shipping, furniture assembly services if required as well as an option to pick up merchandise from that store location.  Speaking about the new store format, the head of IKEA UK, Javier Quinones, said: "we know that the role of the store is changing. People want to shop in a number of different ways and count on brands to offer them services that reflect the way they live."

This is not IKEA’s only small store format location, it opened one in London last year and it is planning to open approximately 30 of these stores over the next few years.  One of the benefits of these stores is that they take less time to build.  It takes about a year to build one of these stores versus three to four years for IKEA’s full-sized stores.

Speaking about the new smaller store format, Green Sykes, Chief Operating Officer of IKEA’s U.S. retail operations said: “a lot of people are moving into cities.” “We are excited to see how we can continue to expand [Ikea’s ‘city centers’]. ... We will continue to look for ways to meet our customers where they are.”

2. Also looking to increase its presence in urban markets Target plans to open 30 small format stores in 2019.  Target’s smaller stores are approximately 40,000 sq. ft, one third the size of a typical Target store. The smallest of these stores is 12,800 sq. ft. Despite their small size, these stores carry many of the categories found in larger Target stores including clothes, electronics, and groceries.  

Merchandise is tailored for the local market.  Some of the merchandising tweaks in these stores include paper towels that come in smaller pack sizes so that customers can easily carry them home. These stores may not sell items such as large screen TVs as those would be difficult for customers to carry home.  Similar to services available in larger stores, customers can get same day delivery of eCommerce orders at these stores and customers also have the option to order merchandise online for in-store pick up.  

In a press release Target stated: "we do plenty of research to understand the surrounding community and its needs -- such as noting which other businesses are nearby and conducting listening sessions with local guests, groups and community leaders -- and design our merchandise plans to match." "A small-format located near a bustling tourist shopping destination might have a vastly different assortment than another just six blocks away, located in a residential area with lots of families with kids and babies."

These stores have proven to be highly productive.  For example, Target’s Herald Square store in New York City has the highest sales per sales per sq. ft. of any of Target’s stores.   Speaking about its smaller store format strategy, Target’s CEO Brian Cornell said: "these stores help us enter new neighbourhoods, where a full-size store wouldn't fit.”  While Target plans to open 30 of these stores this year, it has slowed down the opening of full sized stores with only two planned to open in 2019.

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