Image: Walmart Express
Chuck Bartels  /  AP
Walmart Express stores will stock a variety of general merchandise, perhaps everything from socks to hammers. Some may also have pharmacies.
Alison
By Allison Linn Senior writer
msnbc.com
updated 6/16/2011 11:38:45 AM ET 2011-06-16T15:38:45

Big-box retailers are slimming down.

Two of the nation’s biggest and most prominent retailers, Target and Wal-Mart, are testing out smaller versions of their familiar megastores. The smaller formats are designed to fit more easily into dense urban areas where these massive retailers have had trouble making inroads, and to generate extra business from rural customers who might be unwilling to spend the time and gas money to get a bigger store farther away.

Last week, Wal-Mart opened the first of its Walmart Express stores, which are designed for very rural and urban locations. At about 15,000 square feet, the store could be tucked into a tiny corner of one of Wal-Mart's giant Supercenters, which average 185,000 square feet. Wal-Mart plans to roll out the new format slowly, opening 15 Express stores this year in Arkansas, North Carolina and the Chicago area.

That’s in addition to the company’s larger Walmart Market stores, which are around 40,000 square feet and positioned more like grocery stores, according to company spokeswoman Tara Raddohl. In its quarterly earnings call in May, company executives said they have been  pleased with the neighborhood market stores and plan to open 15 to 20 more this year, on top of about 180 currently.

Target's experiment with smaller stores is slightly different, and more geared toward urban customers. The company plans to launch four CityTargets in 2012 and 2013 in Chicago, Seattle, Los Angeles and San Francisco.

Story: Wal-Mart struggling to keep its customers

The CityTarget stores will be 60,000 to 100,000 square feet, making them about half the size of the typical Target, which is more like 135,000 square feet. The new Targets will be located in existing downtown buildings rather than a suburban shopping strip or mall, company spokeswoman Molly Snyder said.

Analysts say the more petite stores could help Wal-Mart and Target compete with dollar stores such as Dollar General and Dollar Tree, whose small assortment of very low-priced goods have been a big hit in the weak economy. They also could pose a competitive threat to pharmacy chains and local mom-and-pop stores that have traditionally gotten that business instead.

Story: Shoppers slammed on the brakes in May

The moves come as Wal-Mart especially is seeing its U.S. business struggle because its traditional customers have been strained badly by the weight of the recession and high unemployment rates. That’s why analysts are watching the small store pilots closely.

“It’s a trend that I find really interesting,” said Brian Sozzi, equity research analyst with Wall Street Strategies Inc.

Sozzi thinks the small stores eventually could add to the companies’ bottom lines, if done well. But he also thinks the big boxes may have been caught off guard by the recent success of the dollar stores and are now playing catch-up.

“They are late, and they’re not ramping up the growth as much as I’d like,” he said.

Finding the right formula
The big question is whether big boxes can shrink successfully.

Analysts say the smaller stores come with a host of challenges, ranging from finding a good — and cost-effective — location to stocking the limited shelf space with a mix of products that customers actually want.

Finding the right assortment of items could be especially challenging for Wal-Mart, which is used to sprawling shelves lined with a vast array of goods, said Patty Edwards, chief investment officer with Trutina Financial and a longtime retail watcher.

“I think that it is going to be more difficult than they think it is,” Edwards said.

Still, Edwards thinks the smaller stores also could help Wal-Mart, Target and others better serve baby boomers who may be turned off by massive parking lots and hulking stores.

“People get overwhelmed in the big stores,” Edwards said. “A smaller store where you dash in, get what you want … without having to walk through 75 football fields of stuff is good for the aging demographic.”

  1. More must-read stories
    1. The Hartford Courant, Political
      Wild Wall St.

      Has the market volatility got you nervous? These cartoons may give you a little comic relief.

    2. Cyber-thieves create fake Kelley Blue Book site
    3. US says Reebok toning shoes don't really
    4. Can you live on $9 an hour? Play the game

For now, the smaller stores are just a sliver of these companies’ overall business. Both Wal-Mart and Target say they are still mainly paying attention to the larger-scale formats that have made them famous.

“Our focus is still on growth in supercenters,” said Tara Raddohl, a Wal-Mart spokeswoman.

Target has said it hopes to learn the CityTarget project, and may build more stores that are that size or smaller if the pilot ones work out. But Snyder, the spokeswoman, noted that the four planned CityTargets are still a tiny fraction of the company’s 1,755 existing stores.

“I think that there’s certainly an opportunity for growth,” Snyder said.

Other retailers also are trying out the small-box idea. Best Buy is touting its standalone Best Buy Mobile stores as one key to reinvigorating its business, and Staples said in a recent meeting with investors that it is looking at making its newer stores smaller.

Socks to hammers
Raddohl, the Wal-Mart spokeswoman, said the Express stores will stock a variety of general merchandise, perhaps everything from socks to hammers. Some may also have pharmacies.

In rural areas, she said the Express stores are designed to be a place where people can make a “fill-in” trip without spending the time and gas money on a trip to one its big locations further away — or going to another retailer.

“We do want to be competitive in the markets where we have customers,” Raddohl said. “In many of our rural communities, we do have competitors that are dollar stores.”

Raddohl said in an e-mail that she didn’t have any additional insight to share on the company’s strategy with its urban locations or who its urban customer would be. But she did say that the company’s Express stores are part of its recently unveiled healthy foods initiative, which aims in part to expand grocery options in so-called food deserts, where people don’t have much access to healthy, affordable food.

Wal-Mart has sometimes had a tough time making inroads into big cities. The company’s attempt to move into New York City has been met with fierce local resistance, and a move into Chicago was met with fights over wages.

For all big-box stores, there’s also the logistics of finding urban spaces big enough to fit their traditional formats.

Edwards said Target has had a little more experience, and a little more success, getting its stores into urban areas.

“I think with Target you’re dealing with retailers who actually understand the urban consumer,” she said.

She’s less optimistic about Wal-Mart’s chance for success in an urban environment.

“I am of the opinion that they have to look overseas for their growth,” she said. “I don’t think that this could be big enough to change the trajectory for their (U.S.) growth.”

© 2013 msnbc.com Reprints

Discuss:

Discussion comments

,

Most active discussions

  1. votes comments
  2. votes comments
  3. votes comments
  4. votes comments

Data: Latest rates in the US

Home equity rates View rates in your area
Home equity type Today +/- Chart
$30K HELOC FICO 1.97%
$30K home equity loan FICO 5.80%
$75K home equity loan FICO 4.54%
Credit card rates View more rates
Card type Today +/- Last Week
Low Interest Cards 13.70%
13.70%
Cash Back Cards 17.66%
17.91%
Rewards Cards 17.05%
17.17%
Source: Bankrate.com