Retailers’ Idea: Think Smaller in Urban Push

Daniel Borris for The New York Times
By STEPHANIE CLIFFORD

With little room to expand in the suburbs, retailers, including Office Depot, Wal-Mart and Target, are betting that opening small city stores will help their growth.

It is a significant shift from their approach in the past, when they tried to cram their big-box formats into cities, often prompting big fights. This time, the retailers studied city dwellers with anthropological intensity and overhauled things as varied as store sizes (the city stores are a small fraction of the size of the suburban ones), packages (they must be compact enough for pedestrians) and signs (they are simple, so shoppers can get in and out within minutes).

“The suburbs are basically saturated with retailers,” said Patrick L. Phillips, chief executive of the Urban Land Institute, an urban-planning research nonprofit, “but it’s easy to develop stores in the suburbs, and hard to develop stores in cities.”

Office Depot has revamped its stores to create an “economically defensible” way of expanding into cities, said Kevin Peters, Office Depot’s president of North America.

The main objective for shoppers in cities is speed. So a store in Hoboken that is a model for the company’s urban branches is 5,000 square feet, about a fifth of a normal Office Depot. The shelves are about six feet high, much shorter than in a suburban store, so visitors can navigate quickly. The signs above the aisles are simplified so customers do not waste time interpreting them. The service desk, where shoppers can send packages or copy fliers, takes up a big chunk of the store, so no wandering is required.

A typical Office Depot has 9,000 items for sale. This one has 4,500. It sells immediate-replacement items (a pen) versus stock-up items (a 25-pack of pens). At sites where Office Depot has replaced one of its big-box stores with a small store, Mr. Peters said, the smaller iteration has retained 90 percent of the sales of its bigger predecessor.

Still, he acknowledged that the model was not perfect. A shopper in search of a desk, for instance, would have to study tiny dioramas of office sets; sales of desks in the small-format stores are, unsurprisingly, not great.

But retailers are now willing to come into cities on the cities’ terms — with all the zoning headaches, high rents and odd architecture — because that is where the growth is.

Most large American cities are growing faster than their suburbs for the first time in almost a century, according to a Brookings Institution analysis of census results released last month, largely because young adults are choosing urban apartment life. That population shift, along with Internet competition, have made the car-focused, big-box model less relevant.

Target opened its first City Targets, in Chicago, Los Angeles and Seattle, on Wednesday. At 80,000 to 100,000 square feet, City Target, at its smallest just over half the size of a remodeled Target, is aimed at urban shoppers. For instance, City Targets would not carry a six-piece patio set, but a three-piece balcony set instead.

“We see this as an opportunity for the people who live, work and play downtown, who probably have a suburban Target they call their home base,” said Molly Snyder, a company spokeswoman. “You’ll see less 12-packs of paper towels and more four-packs, knowing most people will arrive by foot or public transportation and will have to carry it home.”

Wal-Mart, though it continues to build in the suburbs, is also courting cities. Where it once stampeded into urban areas — and often met huge resistance from residents that led to its retreat — it now uses more diplomacy. In Chicago, for instance, it has agreed to build stores with union labor, and it has donated to politicians and community groups in cities where it hopes to build. Wal-Mart is testing several types of city stores, like the large supercenters being built in Washington, the small Express stores in Chicago and the medium-size Neighborhood Market format store it will open in Los Angeles.

“It’s become easier to site a Walmart, and we have become more accepted by the community,” Leslie Dach, executive vice president for corporate affairs at Wal-Mart, said last month.

Getting approval is only part of the challenge, though. Existing small retailers in cities can be nimble in changing their shelves, as owners can see who is coming in and whether they buy starch, say, in the form of Popchips, rice noodles or yams. Executives at big retailers have little personal contact with most customers.

“It’s much more difficult for a big chain who’s got gigantic warehouses across the country to be sensitive to the local market,” said Mr. Phillips of the Urban Land Institute. On the other hand, large retailers have servers full of data that helps them customize to city shoppers.

Take Wal-Mart’s city-store prototype near Toronto, a 90,000-square-foot store that opened this year. It found that many nearby residents were recent immigrants living in apartments, and one of the first improvements they wanted to make was to their bathrooms, said Alan Blundell, vice president for Wal-Mart merchandise operations in Canada. So the store stocks a higher-than-usual quantity of toilet seats and shower heads.

Walgreen, after it acquired New York City-based Duane Reade in 2010, studied how Duane Reade, a city retailer for 50 years at that point, customized merchandise by neighborhood using loyalty card data.

For instance, a store in Union Square attracted commuters and tourists using the subway there, while the store a few blocks north drew mostly local residents. So the Union Square site carried lots of foot products for the unprepared tourists, along with cosmetics and snacks, while the branch just north of it was more heavily stocked with household-cleaning items, toothpaste and the like. In richer areas, Duane Reade will carry gluten-free products and loaves from Eli’s Bread, said Joseph Magnacca, president of daily living products and solutions at Walgreen.

While Walgreen had city stores before it bought Duane Reade, it used the Duane Reade example to build and refine urban stores elsewhere. For instance, city shoppers dislike items in jars because of the weight. And weird architecture is often part of an urban store, so turn those pillars and columns into displays for candy, gum and magazines.

Over all, Mr. Magnacca said, the only standard element of running city retail is that nothing is standard.“No footprint is exactly the same and no product mix is exactly the same,” he said. “There is no one best solution.”