For big box retail, one of the oldest experiences is discounting

As shoppers search for deals this holiday season in an environment where less price is more for many consumersmore Americans may find that the square footage they visit in retail stores fits this “discount” mantra.

Ikea is known for its giant blue and yellow superstores, which often span 300,000 square feet in the suburbs. But when they opened an 8,800-square-foot store in Gaithersburg, Maryland, earlier this year, they joined the latest in a long line of retailers to adopt a smaller-to-larger strategy. Target, Macy’s, Nordstrom and others have experimented with small-format stores over the past decade. Kmart’s only remaining U.S. outpost in Miami is a third the size of its once-dominant big box stores.

Chain store experiments with smaller formats date back to at least 2011, when Walmart introduced a “Walmart Express” concept to compete with dollar stores, but abandoned the format five years later. Walmart continued to open smaller format neighboring market concepts.

For Ikea, smaller format stores help bring the brand to where their customers are. Two more smaller-format Ikeas opened this fall, one in Alpharetta, Georgia, and another in South Charlotte, North Carolina, bringing the total to 11.

“A Pickup Planning and Ordering Point is one of several new format stores that are part of Ikea US’s growth strategy: increasing accessibility to the brand and ensuring there are more ways to to meet customers where they are and how they want. store,” an Ikea spokesperson said, arguing that smaller stores offer a more personalized experience.

“It’s different from traditional Ikea department stores because it gives customers the opportunity to meet the Ikea store team to plan and order furnishing solutions that require a little more help,” the spokesperson said. , citing jobs like bathrooms and kitchens. .

Targetwho deals major headwinds in the consumer discretionary marketis growing larger simultaneously, opening some stores last year at 135,000 square feet – larger than its usual 125,000 square foot footprint – while continuing to open smaller stores, an effort that dates back to 2016 In 2024, it opened 10 stores. to 20,000 square feet or less, typically in urban areas or nestled in neighborhoods around college campuses.

“Our flexible model allows us to bring the Target experience to life in any size or format,” a Target spokesperson said, adding that they will continue to open both store sizes.

Maximize revenue per square foot of store

The shrinking stores don’t surprise Roger McMahon, a marketing professor at Pepperdine University’s Graziadio Business School and a retail expert. He says the current wave of shrinking store roots dates back decades, but is accelerating. The 2010s marked the start of the shift to online shopping, and the pandemic accelerated it.

“Retailers have been scrambling to find a solution. Interestingly, research shows that most in-store purchases begin online, and many can end up online again. As such, it doesn’t “Brands need to enable this behavior, but also find a way to do it in a format that optimizes their metrics,” McMahon said.

And one of those key metrics is the amount of revenue generated per square foot. A huge space has to work a lot harder to generate revenue per foot.

“The move to smaller stores makes sense when you consider the layout of large format stores. Large format features wide aisles, generously spaced displays and areas designed to encourage customers to sit and relax. relax, hoping to spend more time in the store. That translates into more spending. That means a lot of square footage doesn’t generate any revenue directly,” McMahon said.

However, smaller stores can also evoke a “cozier” feeling for the customer while giving the retailer what they want: more revenue per foot.

“If marketed correctly, smaller format stores can create a more intimate shopping experience while increasing revenue generated per square foot, making it a win for the customer and the business,” McMahon said . Ideally, “this connection will not only lead to more physical sales, but will also result in more online sales for the brand and a more loyal customer base,” he added.

Customers, however, offer mixed opinions on whether less is really more.

“The small Walmart neighborhood markets are perfect! Great for a quick visit and to pick up a few items. The smaller Targets just don’t have everything I need, so I don’t go there anymore,” says Mary Rhodes , resident of Texas.

Meanwhile, Barbara Snedegar, who lives in Cincinnati’s eastern suburbs, prefers the department store selection.

“I’m all for it when it comes to one-stop shopping. Small stores…. I’m not so sure about that,” Snedegar said.

Macy’s Mall anchor stores have struggled as malls have become profit mainstays. Earlier this year, the channel called for the closing 30% of its underperforming stores. Macy’s has attempted to free itself from the mall with smaller-format stores for its Macy’s and Bloomingdale’s brands. Market by Macy’s and Bloomie’s are more miniature versions from their traditional department store formats.

Data from Placer.ai illustrates the attraction of shrinking to grow.

“Consumers in the United States have migrated to smaller suburban and rural markets in recent years, and retailers often find they don’t need the same size to accommodate these customers,” says RJ Hottovy, head of analytical research at Placer.ai.

Placer.ai analyzed traffic to the Bloomie’s store in Skokie, Illinois, and found that its visitors primarily come from areas with a higher proportion of city dwellers than the traditional Bloomingdales format.

“This indicates that Bloomie’s appeals to urban dwellers – which aligns with Bloomingdale’s goal of providing a contemporary, accessible and convenient shopping experience in an urban setting,” Hottovy said.

As retailers become smaller and smaller at the same time, it’s about being all things to all people, according to Michael Zakkour, founder of retail consultant 5 New Digital.

“Consumers today have overriding demand,” Zakkour said. “‘Spoil me, or else.’ Otherwise, they will look for the retailer, brand and service provider that will spoil them,” he said. The choice of format is an essential element in spoiling the consumer, he added.

But this “treat” factor doesn’t specifically mean luxury and doesn’t require a physical presence at all.

“Just as the options for where and how to shop online have grown exponentially, smart retailers must provide diverse options and choices in physical retail,” Zakkour said, citing experiences such as that of Walmart. expand commerce on Roblox and in live shopping with REALM.

For chains like Ikea, which typically build expensive big box stores, downsized stores present an opportunity to plant their flag for a fraction of the cost.

“These stores help spoil the consumer; they show that the retailer is loyal to their needs and can serve as a forward operating base for local deliveries and mini-flagships,” Zakkour said.