How Target is using small-format stores to score with younger shoppers
The big-box retailer is betting big on convenient, localized stores to win over millennial and Gen Z college consumers.
For years, Target has been eying the college campus demographic with small-format concept stores, the first of which opened on the University of Minnesota’s campus in 2014. The 20,000 square foot store (then referred to as a TargetExpress was later rebranded as a "small-format store") was one of just nine to open that year.
Now three years later, CEO Brian Cornell said he hopes to double the amount of such stores, bringing the number to 30 by the end of the year, totaling more than 100 over the next three years. The new stores are part of a $7 billion investment to re-imagine Target’s physical store strategy, which also includes remodeling existing stores.
The new small-format stores, which generally size between roughly 17,000–50,000 square feet, aim to target three key markets: urban centers, suburban areas and college campuses.
Each of these environments presents its own needs and benefits for Target, but the retailer’s locations on college campuses are a particular push to go after growing millennial and Gen Z consumers, who present Target with a pre-segmented opportunity to build its brand with younger generations who will hopefully become lifelong customers even after they earn their diplomas.
By the end of the year, there will be 12 small-format Target stores on college campuses across the country. And where the big-box retailer isn’t opening small-format campus stores, it’s partnering with Barnes & Noble College to promote the Target brand at the nearly 800 campus bookstores connected to Barnes & Noble Education, the company recently announced.
For Brendan Witcher, principal analyst at Forrester Research, the new stores aren’t only about making a push for college campuses, but about pushing back on the retail apocalypse narrative. "Even if 8,000 stores close there are 1.4 million stores out there. We’re in a state where retailers are trying to turn stores from perceived liabilities into assets. Places to shop, to engage," he told Retail Dive. "It’s hard to rethink with big footprints. When you have 10 customers to one associate, it’s hard to create that unique experience."
While the campus-based stores are flooded with new features that improve customer experience in various ways, they have a particular emphasis on hyperlocalization through analytics and the convenience of in-store shopping and order pickup. With the threat of Amazon’s irresistible Prime ecosystem moving in to secure the loyalty of younger generations, it’s more important than ever for Target to leverage its physical store fleet and flaunt its "cheap chic" reputation.
Localizing small-format stores
Perhaps one of the greatest feats for any retailer is to gain a comprehensive understanding of how each store can best serve its customers — and that means adjusting the assortment and services to fit regional and demographic needs. When it comes to targeting college students, that means understanding how Target stores can fit into an on-the-go, budget-conscious lifestyle. It’s also a matter of understanding what’s important to those customers. What’s top of mind for most college students right now? Move in week, where students check into dorms and other campus housing.
Since many college students don’t have a car, one pain point these new Target stores aim to address is getting them to stores. This year, the retailer is partnering with Gotcha Ride, an eco-friendly transportation and advertising medium, to give out free rides to Target stores near the University of North Carolina at Chapel Hill and the University of Cincinnati during students’ first two weeks on campus.
Once students can get to the stores, then it’s a matter of analyzing purchase data and customer feedback to tweak the assortment. "[In] our small-format team, within that large team, there are people that do the guest insights and research. Once a store opens, if the manager is saying, ‘Hey this is a campus store, but it’s also serving guests in the neighborhood and they’re asking for this cereal’ then those store managers work with the buyers. It’s happening in real time when the store first opens," Kristy Welker, PR specialist at Target, told Retail Dive.
By nature, small-format stores offer a limited assortment of products and therefore must focus on key categories important to that demographic and forgo shelf space for others — so forget children’s clothing or bulky furniture. The small-format store that opened in July in Orange County just outside of the University of California’s Irvine campus, for example, expects one third of its assortment to be made up of groceries. That store will also see a larger selection of beer and wine as well as dorm necessities, according to The Orange County Register.
Because all stores are localized, Welker could not provide a breakdown of the assortment makeup for small-format stores, but she added that all campus stores are outfitted with fan centric merchandise of university and local sports teams. For example, Target’s Chicago Belmont small-format store prominently features Cubs gear and Pride flags in the front window and entrance, thanks to its location near Wrigley Field and local gay community.
Indeed these stores are much more nimble than the retailer's massive big-box stores, Ryne Misso, director of marketing at MarketTrack, told Retail Dive.
"They’re tailored to what [Target knows] about the local audience. If you have a Target store in Florida State, it would be wildly different than a Target on the Northwestern campus," he said. "There’s a level of detail of shopper insights that they’re employing to tailor everything, with shopper feedback deployed in every element." In order to differentiate from competition, Ryne added that Target needs to bolster one-to-one personalized experiences.
In order for these concept stores and others to win, Witcher said, retailers like Target need to become data-driven organizations that are customer obsessed.
"Those two combinations, if you are not on both of those paths your future isn’t very good as a retailer," he said. "Data to service customers isn’t about treating everyone the same, but as individuals and understanding that information to operate more efficiently."
The surge in popularity of e-commerce companies like Warby Parker, Bonobos, Stitchfix and Blue Apron may have some thinking millennials and Gen Zers have all but given up on in-store shopping. And while these young generations may hate many pain points tied to the traditional shopping experience — aimlessly scouring an overwhelmingly large store for one specific item, searching aisle after aisle for the help of an aloof store associate or waiting in extremely long checkout lines — data shows they are still drawn to stores for the convenience of trying out products and taking them home immediately.
The new Target stores are all about "putting the guest first in design."
PR Specialist, Target
These customers don’t need the full breadth of assortment on physical shelves in front of them. Younger consumers like stores, they just need them to be more convenient. As Welker explains, the new Target stores are all about "putting the guest first in design."
While grab-and-go grocery items have been a difficult sell at Target’s large-scale stores, college campuses may have better luck mitigating spoilage issues considering the demographic’s on-the-go lifestyle. "Grab-and-go is a big part of a student’s lifestyle at a college. It’s a high velocity thing. From buying apparel or shoes to household items, velocity is much lower, and consumers won’t experience the brand as much," David Bell, professor of marketing at the Wharton School of Business at the University of Pennsylvannia, told Retail Dive.
Added to that convenience is the fact that while a student might be picking up a ready-made sandwich before they head off to class, they may also see household necessities they want to ship directly to their apartment or dorm. While grab-and-go may get them in the door, a careful assortment may have them walking away with more than they anticipated. In fact, most of these stores are becoming ecosystems complete with a Starbucks, CVS Pharmacy and Target Mobile services.
Another key piece in making these stores more convenient is upping the omnichannel game.
Because these small-format stores are, well, small, Target has placed a big emphasis on order pickup, an option intriguing to students that may live in sorority or fraternity houses or apartment buildings and dorms that don’t allow for package deliveries.
"You have a lot of retailers missing the point of how shoppers shop today. We see in our data that more customers, when they have the option of buy online pickup in store, in those cases with the same customer it has become as common as online shopping," Witcher said. "That said, what you need to do is rethink the store in context of using that as a shopping channel."
Target, however, will still need to fend off competition from Amazon, which recently announced an Instant Pickup service for Prime students, offering them a selection of daily essentials that can be ordered in two minutes or less.
"People talk about the Amazon effect and there is no Amazon effect. Most consumers don’t need everything today. We are willing to wait for items we buy online. There are certain items we need today and we go to the store for them."
Principal Analyst at Forrester Research
With at at least five locations, Amazon may have an edge on instantaneous delivery, but Witcher said that shouldn’t hold retailers like Target back if they truly have a convenient omnichannel experience. "People talk about the Amazon effect and there is no Amazon effect," he said. “Most consumers don’t need everything today. We don’t need that lamp today or that coffee mug today. We are willing to wait for items we buy online. There are certain items we need today and we go to the store for them."
Redesigning the store of the future
Target is ahead of the curve compared to its competitors on small-format stores that cater to certain markets. These new stores, which could be a hotbed for testing new technologies and innovations among digitally savvy customers, allude to what we can expect many Target stores look like in the near future.
As the retailer continues to experiment with and tweak the format, it still has a lot of learning to do. There are many pain points that small-format stores have yet to overcome, said Witcher, including making it easy for shoppers to find products online when they’re in stores, incorporating product reviews to mitigate price checking and easing the checkout process.
One retailer that’s ahead of even Target in tackling these problems, Witcher said, is Sephora, which has a number of small format stores as well as shop-in-shops in J.C. Penney department stores. "The key to Sephora and other leading retailers is they don't have a business strategy that a piece is digital, or where they think 'how can this be better with digital' or where they say 'Let’s see what the digital team thinks.' It’s incorporated in every step of the journey," he said.
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