Best Buy, Target, Macy’s and Other Big Box Chains Shift to Small Retail Formats

Smaller retailers have for decades been up against the long reach and economies of scale that give big box chains their competitive advantage. Now they may also be battling those larger rivals for the very store fronts they work from, as heavyweight vendors take over their turf in a shift to small-format point-of-sales strategies.

Consumer goods retailer Best Buy is the most recent of those mega-chains to speed the move toward smaller stores, as it adapts to continued changes in post-pandemic consumer habits. That not only means setting up outlets closer to shoppers now less inclined to drive out to and meander around big box outlets. It also involves reducing display and storage space that’s become less useful as the estimated 280 million people in the U.S.–fully 70 percent of the population–reinforce their online shopping habits, according to customer service company Tidio.

Those factors have motivated the turn to smaller format stores that retailers including Nordstroms, Target, Kohl’s–and even XXL big box chain poster child IKEA–are all making. The general thrust driving the trend is the same: reduce the costly square footage of traditional outlets for more compact, conveniently located alternatives that customers can browse while picking up, returning, or having work done to online orders.

According to a Washington Post report on the trend, those elements motivated the rollout of Nordstrom Local stores, which provide click-and-collect retrieval, clothes alterations, and other services. 

The paper also noted Kohl’s is “adding 100 small-format stores that are about 35,000 square feet in size,” while Swedish meatball (and furniture) giant “Ikea has at least 26 mini stores, including ones just for picking up orders and others to that resemble a showroom called ‘Plan & Order’.”

In most of those cases, the adoption of reduced-sized shops in city centers or in more affluent suburban settings has come in addition to maintaining the flagship big box facilities. Others, however, have launched new small stores or introduced them as part of their reduction of spaces to cut costs amid declining consumer visits.

According to the Post, that included Target’s recent exploration of the format, as it otherwise “saw the average size of its new leases from 2021 through 2023 shrink 35 percent.” It’s also the case for Best Buy, which last week said it would test the smaller shop option as it closes 10 to 15 big stores in fiscal year 2025, atop the 24 locations it wound down in fiscal year 2024.

“First, we will open small locations in a couple outstate markets where we have no prior physical presence and our omnichannel sales penetration is low to measure our ability to capture untapped share,” said Best Buy CEO Corie Barry on an earnings call last week. “Second, we will test our ability to close a large-format store and open a small-format store nearby, thereby maximizing physical store retention through convenience.”

Macy’s is also now looking to adopt the small store concept that sister company Bloomingdales has already trialed with “Bloomie’s.” That comes as Macy’s new CEO Tony Spring moves to shutter 150 struggling department store locations across the U.S., as he tries to save the financially flailing brand.

But in moving in on what has been traditional small retailer space–potentially on the very same blocks–the big box chains are making a switch that may not be an easy adjustment for all, says Katherine Black of consultancy Kearney.

“The real crux for these retailers is picking the right merchandise for these smaller-format stores and figuring out where that makes sense,” Black told the Post. “The more inventory they take out of stores, the more they’re almost forcing the consumer online.”