Urban retailing is big business. The recent closure of all of the Wal-Mart Stores Inc (WMT) Express stores has other retail investors wondering if the concept is viable. At Target Corp (TGT), the small-sized urban locations are proving to be popular with the number of stores growing each year. Why is Target’s express store concept able to flourish while Walmart, the previous retail leader, was unable to make their stores profitable?

Slow and Steady

A reason for Target’s success with its small store strategy is its slow store launches. Since opening their first TargetExpress in 2014, the company has only expanded to five stores. A slightly different concept, CityTarget was launched in 2012 and has since expanded into nine stores.

There’s a reason that companies start slowly and open few stores a year to gain momentum: brand recognition and cost control. In Canada, Target felt that it had sufficient brand recognition to open 133 stores in its first year of operations. In hindsight, this was a foolish move that cost the company billions of dollars. By opening a few TargetExpress stores, the retailer was able to fine-tune the different logistics needed to run a smaller store. This strategy is in sharp contrast to Walmart’s experiment where the large number of small stores proved impossible to profitably operate. A slow start also allowed Target to see if its plan to operate tailored Target stores would take off, before it spent the billions needed to regionalize product offerings in each Target nationally. (For related reading, see: Target Aligns Store Concepts Under One Name.)

Tailored Stores

The neatest thing about TargetExpress stores is their themed aesthetics. Typically, a Target store in Austin is identical to one in Orlando: the shelves are off-white, the accent color is red, and Target’s famous bull's-eye logo is plastered everywhere. TargetExpress stores on the other hand are a bit different, even if you can’t identify the differences right away.

Each TargetExpress store is decorated and stocked to match its neighborhood. San Francisco’s store has a mural which includes the Golden Gate Bridge and the TargetExpress store near the University of Minnesota sells U of M merchandise. Since the stores are about 15% the size of a regular Target, management needs to prioritize their product offerings. College-area Target stores won’t stock baby formula and toys but Express stores in certain neighborhoods will load up on kosher offerings, cater to business people’s needs or have large yoga displays. (For more, see also: Find Your Niche Market.)

This idea is fantastic because it allows Target to maximize their space while offering the customer exactly what he or she needs. A mom on her way home from work can pop into a TargetExpress, grab diapers, dinner, fresh fruit for breakfast and a book to read in bed all in one stop. She doesn’t have to drive to a large Target store, fight for parking and walk through 135,000 square feet of retail space. The TargetExpress store concept makes it easy for busy people to get what they need now.

Why Investors Should Care

Getting people what they want as soon as they want it is the goal of American retail in the 21st century. We live in a society where almost anything we want can be ordered wherever we are, and delivered to us in as little as an hour. Media moves even faster, with many Americans able to access television shows, music and movies in seconds. We expect all of this convenience and we don’t expect it to cost more than slower options.

Unfortunately for Target shareholders, Amazon.com Inc (AMZN) seems to be the only company able to satisfy Americans' needs for now. Amazon is the king of impulse buying thanks to its popular Prime program and slowly the e-commerce giant has been taking market share from Target for years.

In order for Target to compete with Amazon, it needs to be faster and more convenient. The only way that Target can do this is to have the products that the customers want in an easy-to-access location. This is the idea behind TargetExpress. The data gathered from regular Target stores, and now from the 18-month TargetExpress project, can be used to pinpoint exactly what consumers in the area need and are likely to buy. Target can tweak its product offerings relatively easily if the market changes, and since the stores are still Targets, any products not in stock can be ordered online for in-store pick-up.

The Bottom Line

Because of Target’s data collecting and dedication to tailoring each TargetExpress store to its neighborhood, their small-sized store experiment is working. Americans in select cities are able to pop into an urban Target store and get whatever they need without having to wade through aisles of unwanted products. By moving extremely slowly, Target is taking a conservative risk in its attempts to fill a void in the retail marketplace.

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