Why Target Is Betting on Small-Format Stores

Target (TGT) is expanding its small-format store base and expects to open 28 new small-format stores this year, including the 11 stores opened this week. Moreover, the company stated that by 2019, it aims to raise its small-format store count to 130. Also, Target is speeding up the process of revamping existing stores and plans to remodel about 1,000 of them by 2020. Currently, the company operates over 1,800 stores.

The company’s latest announcement is important, as this strategic move could enhance the company’s top-line performance, as its small-format and remodeled stores are seeing healthy comps growth driven by higher traffic. Meanwhile, the small-format stores also generate higher productivity, almost double that of traditional ones. Furthermore, expansion of its physical stores could support its e-commerce business by acting as a distribution network to fulfill online orders.

Target is making a series of strategic investments to turn around sales and strengthen its competitive positioning against rivals including Walmart (WMT), Costco (COST), and Amazon (AMZN). The company recently expanded its popular next-day delivery service, Restock, to new markets and plans to roll out the service nationwide by 2018.

Moreover, starting today, the company will offer same-day delivery service to Herald Square, Brooklyn Fulton Street, and Brooklyn Bensonhurst stores. Target first tested the same-day delivery service at its Tribeca store in June.

Target is ramping up the pace of new small-format store openings and is focusing on its e-commerce arm to drive sales. The company’s efforts are seeing results, as Target managed to revive its sales and post improved comps during the last reported quarter.