Tuesday, February 9, 2010
Wal-Mart and Target plan on developing smaller stores in order to penetrate the urban market. By decreasing square footage, entrance will be easier, allowing companies to take advantage of low prices in high traffic areas. This continues the recent trend of urban expansion, demonstrating the strong attractiveness of that market.
Typically, urban areas are associated with higher “real estate and fixed costs”, rendering big box stores somewhat ill-suited and clumsy. For retailers like Wal-Mart and Target, it was easier to move to locations more suitable for their gargantuan constructions. However, the wave of foreclosures which has washed over commercial real estate has forced prices down and tenants out, leaving many attractive properties in its wake. In order to take advantage of these opportunities, the traditional big box model has to be scaled down, with a focus on smaller, streamlined stores which will be able to enter the urban market.
This urban move would seem somewhat risky; can a model based on large stores and inventories really be shrunk? But the high traffic provided by these areas along with an increase in demand for value products, should ensure success. Furthermore, these developments lend credence to the notion that urban investments are at present some of the best and most secure. The net lease market has observed continued success in regard to its urban properties and expects the trend to continue.