Adapting to Change: How Small-Format Stores Are Reshaping the Future of Retail

In recent years, the “future of retail” has become a hot topic in an industry that’s working to keep pace with evolving consumer preferences. As recent headlines have shown, many large retailers are struggling to remain relevant, leading to store closures and sparking headlines suggesting a decline in traditional retail.

With major brands announcing store closures across the U.S., some predictions estimate that as many as 45,000 retail stores could close in the next five years.

These figures may seem daunting to retail real estate professionals, but they only tell part of the story. Many retailers are taking bold steps to reinvent themselves with an innovative approach: the “small-format” store. This new model is designed to cater to consumers’ demand for tailored, local shopping experiences.

The Rise of the Small-Format Store

The concept of a “small-format” store involves offering a curated selection of products typically found in big-box or department stores but in a smaller, more efficient footprint. This allows brands to extend their reach into new submarkets and better connect with key consumer demographics.

While not a new idea—Walmart introduced an “Express” model as far back as 2011, with Target and Amazon also exploring small formats—recent shifts in consumer expectations have made the concept more relevant than ever. Today’s shoppers increasingly want to meet their needs close to where they live and work. This mirrors trends in other sectors, like mixed-use developments that blend living, working, and recreational spaces.

For major retailers, this shift is about reducing commute times for shoppers and driving sales by bringing products closer to their daily routines.

Reimagining Retail: Case Studies in Small Format

Several large retailers are leading the charge with small-format stores, including Macy’s, Target, and Ikea. The concept is also catching on among grocery chains like Sprouts Farmers Market, which integrates small-format stores into its sustainability efforts.

Macy’s, for example, recently announced plans to close 150 stores nationwide, while expanding its small-format “Bloomie’s” concept, based on its sister brand, Bloomingdale’s. This approach allows Macy’s to reach both existing and new customers with a curated shopping experience tailored to local tastes.

Early signs suggest this strategy is working. Data from Placer.ai shows that Bloomie’s locations attract a higher percentage of visitors from key urban demographics compared to their full-sized Bloomingdale’s stores.

Ikea’s small-format “Planning Studios” focus on the specific needs of urban living, offering targeted selections of products like bedroom, bathroom, and kitchenware. Similarly, Kohl’s is using small-format stores to reflect the lifestyle needs of local communities, as seen in its Tacoma, WA concept store, which emphasizes outdoor gear.

Small Stores, Big Advantages

For retailers embracing the small-format model, the benefits extend beyond simply expanding reach. These stores provide an opportunity to gather valuable in-store analytics, allowing brands to refine product offerings based on the specific needs of their communities.

Target, for instance, uses in-store analytics to tailor inventory for locations near college campuses, offering products like dorm room essentials and easy meal options to cater to students.

Additionally, small-format stores serve as testing grounds for new ideas, enabling brands to trial concepts in a controlled setting before rolling them out more widely.

Opportunities for Commercial Real Estate

While it’s too soon to predict the long-term success of small-format stores, one thing is clear: the retail landscape is evolving, and adaptation is key to survival.

For commercial real estate (CRE) professionals, this shift presents a unique opportunity to leverage our expertise in helping clients find the right spaces for these innovative concepts. We can play a critical role in turning new ideas into reality and unlocking untapped market potential.