Talk about going into the belly of the beast.
Target (TGT) said on Monday it would open a store in the shadows of the Empire State Building in Manhattan, this fall, in what will be the biggest test yet of the smaller format the discount retailer is betting on to return to growth.
The 43,000 square-foot store in Manhattan’s Herald Square, a stone’s throw from Macy’s (M) famous 34th St. location, will serve as a flagship of sorts—despite its smaller size—in one of Manhattan’s busiest shopping and tourist areas.
The store will be one of 30 stores Target will open in 2017, the bulk of which will be in a smaller format than the suburban big-boxes for which it is best known.
Last month, Target executives warned investors to brace for lower profits while it invests in improving its supply chain and stores, many of which CEO Brian Cornell recognized were “old, tired.” Target has now reported three straight quarters of comparable sales declines.
At the same time, Target announced it would aggressively expand its network of urban, smaller format stores, which now number 32. (It has 1,800 stores in all.)
Company executives said at the investor meeting on Feb. 28 that comparable sales at those stores were twice those of its regular big box locations in suburbs and said they would more than quadruple that fleet by 2019, by which time there would be more than 120. (And robust sales will be needed to cover the high rent in that area.)
The smaller stores are meant to both reach urban dwellers, who tend to be more affluent but also underserved by Target, and tourists in cities like New York and San Francisco. Target said on Monday that New York, where it already has a smaller store in Tribeca among other locations, with more in the pipeline, is a “priority market” for the smaller format concept. City centers are also markets where Walmart (WMT) is largely absent.
“Not only will we be able to serve the thousands of working professionals that travel through Herald Square each day, but we’ll have the opportunity to showcase Target’s exclusive brands and compelling offers for the many tourists from around the world who shop in this vibrant neighborhood in Manhattan,” said Mark Schindele, Target’s SVP of properties.
The store will also be a big test for Target in offering an assortment catering to locals and tourists who frequent that store, a big challenge for any massive retailer’s supply chain. Target’s Herald Square store, so close to massive stores from apparel-focused chains like Macy’s, J.C. Penney (JCP) and Victoria’s Secret, as well as beauty chains like Sephora, will emphasize clothing and accessories on its street level, much as it does in Tribeca.
Target will offer grocery, a business it is struggling to get righter at the moment on the lower floor, and offer grab-and-go food for harried office workers off of 33rd Street. The retail will also, as it does at all stores, offer store pickup for online orders, something that will help it compete to win the business of the hundreds of thousands of suburban commuters who use nearby Penn Station to get in and out of Manhattan.