Shrinking is one of the longest-running experiments for big-box retailers.

• Ikea is the latest big-box retailer to offer smaller-footprint stores for consumers.
• In recent years, Target, Macy's, and Nordstrom have all established smaller square-foot locations. Walmart has had its Express store for over a decade, and the last remaining Kmart in the U.S. is a smaller format store.
• Some cases of targeting a more affluent demographic with the concept may be due to location and targeted expansion strategies, as data indicate.

This holiday season, as shoppers search for deals, many Americans may find that the square footage they visit in retail matches the "less is more" mantra.

Ikea is renowned for its large blue and yellow big box stores, which can cover up to 300,000 square feet in suburban areas. However, when they opened an 8,800-square-foot store in Gaithersburg, Maryland, earlier this year, they joined the growing trend of retailers adopting a smaller-is-bigger strategy. Target, Macy's, Nordstrom, and others have experimented with small format stores over the past decade. Kmart's remaining U.S. outpost in Miami is a third of the size of its once dominant big boxes.

Since 2011, Walmart has experimented with smaller formats, including the "Walmart Express" concept, which was introduced to compete with dollar stores. However, the format was shelved five years later. Despite this, Walmart has continued to open smaller format Neighbor Market concepts.

Ikea's smaller format stores are an integral part of the brand's strategy to reach its customers. This autumn, two more smaller format Ikeas were opened, one in Alpharetta, Georgia, and the other in South Charlotte, North Carolina, bringing the total to 11.

An Ikea spokesman stated that the new format stores, including those with a Plan and Order point with Pick-up, are part of the growth strategy for Ikea U.S. These stores aim to increase accessibility to the brand and provide more ways for customers to shop according to their preferences. The smaller stores offer a more personalized experience.

The Ikea store offers a unique experience for customers seeking assistance with complex home furnishing projects, such as bathrooms and kitchens, through meetings with the store team.

The company, which faces challenges in the discretionary consumer market, is expanding its store size both larger and smaller simultaneously. In 2024, it opened 10 stores, some at 135,000-square feet and others at 20,000 square feet or less, in urban areas and near college campuses.

A Target spokesman stated that their adaptable model enables them to deliver the Target experience in any size or format, and they will continue to open both small and large stores.

Maximizing revenue per square foot of store

The current trend of shrinking stores is not new, but it has been intensifying in recent years. The shift towards online shopping in the 2010s and the acceleration of this trend due to the pandemic have contributed to this development.

McMahon stated that retailers are frantically searching for a solution. Interestingly, research indicates that the majority of in-store shopping trips begin online and may end back online. As a result, it is not an either/or situation. Brands must enable this behavior while also optimizing their metrics.

To generate revenue per foot, a massive space must work harder.

"When considering the layout of large-format stores, it makes sense to move to smaller stores as they have narrower aisles, less spacious displays, and less area designed to encourage relaxation, which means that less square footage generates revenue directly," McMahon stated.

Small stores can also create a "cozier" atmosphere for customers while increasing revenue per square foot for merchants.

"Properly merchandised, smaller format stores can offer a more intimate shopping experience, increase revenue per square foot, and benefit both customers and companies," McMahon stated. Additionally, this connection can lead to increased brick-and-mortar sales, more online sales for the brand, and a more loyal customer base, he added.

Customers, though, issue mixed reviews on whether less really is more.

"Neighborhood Walmart markets are excellent for quick runs and picking up a few items. However, smaller Targets do not have everything I need, so I no longer visit them," says Texas resident Mary Rhodes.

Barbara Snedegar, a resident of the eastern suburbs of Cincinnati, prefers larger stores.

"I'm all for one-stop shopping, but I'm not as convinced about the smaller stores," Snedegar remarked.

As malls have become anchors on earnings, mall anchor stores have struggled. Earlier this year, the chain called for the shuttering of 30% of its underperforming stores. Macy's has been trying to break free from the mall with smaller format stores for their Macy's and Bloomingdale's brands. Market by Macy's and Bloomie's are more miniature versions of their traditional department store formats.

Data from Placer.ai illustrates the attractiveness of shrinking to grow.

R.J. Hottovy, head of analytical research at Placer.ai, states that consumers in the U.S. have shifted to smaller suburban and rural markets in recent years, and retailers often discover that they don't require the same amount of space to cater to these customers.

Analyzing traffic to the Bloomie's store in Skokie, Illinois, Placer.ai discovered that its visitors are predominantly from urban areas, unlike traditional Bloomingdale's stores.

Hottovy stated that Bloomie's appeal to city dwellers aligns with its goal of offering a modern, user-friendly, and convenient shopping experience in urban areas.

Michael Zakkour, founder of retail consultant 5 New Digital, believes that with retailers of varying sizes, it's crucial to be everything to everyone.

Zakkour stated that consumers' primary demand today is to be pampered. He said, "Spoil me or else." If retailers, brands, and service providers fail to meet this demand, consumers will look elsewhere. According to Zakkour, the choice of format is crucial in satisfying the consumer's desire for pampering.

The "spoil" factor doesn't necessarily mean luxury and can be achieved without a physical presence.

As the number of online shopping options has increased dramatically, retailers must offer diverse physical retail options, as demonstrated by Walmart's expansion onto Roblox and livestream shopping with REALM, according to Zakkour.

Ikea's scaled-down stores offer a cost-effective way to establish their brand presence.

Zakkour stated that these stores aid in spoiling consumers by demonstrating the retailer's loyalty to their needs and serving as forward operating bases for local deliveries and mini-flagships.