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Target Adapts to Fill Untapped Urban Markets

Written By Brian Hicks

Posted February 25, 2015

Target Corp. (NYSE: TGT) began field-testing a new brand this past July in Minneapolis, Minnesota called Target Express, a 20,000 square-foot store that’s approximately the size of your local pharmacy, or about 15% of the size of a traditional store.

The big-box retailer is attempting to boost sales by coming directly to city dwellers who don’t have access to a suburban Target.

In an environment where paying the rent on a typically sized Target store just isn’t viable, this new effort is the best way for Target to reach urban customers.

Following what seems to be a trend, Target will open more urban mini-stores than big-box stores this year. Recently, miniature Wal-Mart (NYSE: WMT) stores began popping up across the country, and now TGT has joined their ranks.

This type of expansion is the next logical step for Target and its industry competition, as market saturation in suburban areas affects growth.

TGT has announced that it will open more Target Expresses than full-size stores in 2015 — nine versus six — a significant milestone for Target and the big-box retail industry as a whole.

This experiment began as CityTarget in 2012 but was intentionally kept small until now. Intentions for opening Target Expresses in Boston, Chicago, Portland, San Francisco, San Diego, and Washington, D.C. have already been announced, with ongoing exploration for expansion into Los Angeles and Philadelphia.

North of the Border

In the wake of Target’s failed campaign in Canada, urban expansion should not only help the brand save face but will also do wonders for its bottom line.

Where it once saw the country as a wealth of markets ripe for development, TGT will soon close all of its 133 Canadian locations after taking a $2 billion hit inside of two years.

Target continues to be aggressive with opening new smaller locations stateside, but new store openings overall have diminished. Last year, it closed more stores than it opened.

Following the Canadian debacle, Target is taking a more conservative approach as it works to revive sluggish sales and fine-tune its developing Target Express brand in which each store will be different.

The flagship Target Express near the University of Minnesota in Minneapolis already holds a marked increase in baking supplies, sunglasses, and yoga pants — highly sought-after items by the consumer base, which primarily consists of college students.

Going forward, even the new big-box stores will carry location-distinct wares. Two new Target stores coming to Hawaii — on Oahu and Maui, respectively — will sell local delicacies such as kalua pig and Hawaiian coffee.

Shots Fired

Amazon (NASDAQ: AMZN) has long gunned for Target. As the world’s largest e-retailer, it has routinely undercut Target’s prices, combined with a wide range of strategies to woo consumers away from its competition with immediate one-click shopping.

In retaliation to Amazon and Wal-Mart’s tactics, Target struck back on Monday by cutting its minimum purchase requirement to receive free shipping in half from $50 to $25. That’s $10 less than what you have to spend at Amazon or Best Buy (NYSE: BBY) for free shipping.

By altering its own shipping policy in the hopes of hurting Amazon’s sales, the big-box retailer will have a reduced bottom line along. This sort of back and forth sets a dangerous precedent, but from an investing perspective, it will be highly advantageous to choose the winning horse.

Target audaciously claimed that its new policy “will change your life,” but that kind of marketing bespeaks at least a little desperation. Stay tuned for similar marketing moves in the future that confirm this theory.