This seems to be the era of reducing the size of retail prototypes.  Smaller footprints are becoming all the rage with big box chains.  This trend is due in large part to the simple notion of reducing burdensome real estate, construction and maintenance costs.  A smaller store footprint also provides more opportunities when scouting for locations.  Smaller prototypes often lend to the notion of a less confusing, more efficient, more attractive shopping experience for consumers.

In discussing his company’s accelerated expansion of its smaller prototypes, especially focusing on its Neighborhood Market stores, Bill Simon, president of Walmart’s U.S. division recently told Wall Street analysts, “This gives us the opportunity to build more stores for less money”. Walmart has long envied the success of dollar stores which essentially set the mold for flourishing in a functionally smaller store size.

The recent incredibly aggressive wave of expansion of dollar chains, despite the now four yearlong recession, is in large part due to the physical and fiscal flexibility afforded by compact new locations. As the major drug chains eagerly grow their food and general merchandise offerings, they too are able to flex their expansion muscles in part due to efficient prototypes.

This point is seen as a big plus for the dollar store category.  For years dollar stores have been envied by big box competitors for their ability to fit comfortably into virtually any real estate niche, while keeping expansion costs low.  At the same time these retailers offer a quick in-out shopping experience which is greatly appreciated by the increasing number of time stressed shoppers.

Then there is the notion that the modern era almost forces companies to contract their retail selling space.  Best Buy is among the retailers most affected here.  Competition from Internet based retailers and smaller independents with a great web presence have sent Best Buy scrambling as quarterly financials continue to cause concern.  Additionally, modern technology has dampened Best Buy’s profitably from products once considered keys to the company’s success.

In its traditional stores Best Buy still devotes considerable space to CDs and DVDs, years after downloads began shrinking the viability of these products.  As the prices and margins for flat screen TVs have plummeted, Best Buy hunkers down for perhaps a not so happy holiday season, even as many retailers are upbeat.  Best Buy’s new smaller prototype likely will not miss the reduction of products offering diminishing financial returns and consumer attraction.

Office Depot is another retailer faced with troubling financials which plans to feature fewer products at its new smaller prototype stores.  Instead of forcing product on costly retail space, the company will be supplementing in-store offerings with a greater breathe of stock at its website.  As consumer tastes change so will the mix of offerings between its website and its stores.

As noted in a recent Insight, Target has been using a two pronged approach to enjoy the advantages of smaller prototypes.  First the aggressive rollout of the grocery-oriented, PFresh format within the confines of traditional stores has saved Target the considerable costs involved with opening or converting to the much larger Super Target stores.  The PFresh concept does cut down on a few Super Target amenities such as on-premises bakeries and deli counters but clearly the retailer feels this is a financially inspiring trade-off.

CityTarget is the company’s latest entry into a more compact format.  This prototype is designed to efficiently attract the growing legions of urban consumers that are increasingly populating our major cities.  These stores are smaller than typical Target stores, averaging just 80,000-100,000 sq. feet.

CityTarget offerings are geared toward modern urban living.  Thus there is little space for concepts such as outdoor furniture.  Merchandise offerings differ somewhat from typical Targets, aiming to best cater to the modern urban consumers Target hopes to attract.  In fact, merchandising at each CityTarget is designed to appeal specifically to the needs of local community members.

These smaller stores offer significant savings in real estate costs.  To maintain these advantages, delivery areas are far more compact than those at conventional Targets.  Even the delivery trucks serving CityTarget stores are smaller.

Now Walmart comes out with a long anticipated announcement as to its future with smaller formats.  On the surface it did appear as anticipated, that the company is eagerly embracing the growth of smaller formats for its immediate future.  However, much of the substance actually revolved around the expansion of its Walmart Neighborhood Market concept.  The question is why was there so little talk of its much smaller Walmart Express concept.

Walmart Neighborhood Markets are essentially supermarkets with little of the general merchandise which built the company into an international retailing powerhouse.  Walmart Express locations were seen as Walmart’s answer to the incredible growth and success of dollar stores.  At approximately 15,000 sq. feet Walmart Express locations still dwarf most dollar stores which typically average half their size.  Even some of the new, larger dollar store prototypes which are designed to add fresh produce and other desirable perishables into their mix come in at around 10,000 sq. feet.

Walmart Express stores were designed to offer a mix of grocery and general merchandise, hopefully a Walmart sized to compete with dollar and drug chains.  Cleary this has been a work in progress.  The company initially opened just under a dozen Express stores within months of the initial Express store opening.  Since then an Express store in Chicago closed down as its lease came up for renewal.  Recent announcements have acknowledged a future for the Express concept but have failed to express a solid growth strategy.