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While we wait for all of the official numbers to come in from the 2013 holiday shopping season — a topic I’ll address in a future column — I thought this might be a good time to expand on one of the points I made about retail downsizing in my 2014 forecast piece.

Not only is this a noteworthy trend to keep an eye on in 2014, but I think it’s part of a much more significant and longer term shift in the evolving philosophy, design and operational architecture behind many retail venues. While there are many advantages to a smaller format, one of the most important reasons that many retailers will continue to shrink footprints is the greater flexibility to pursue urban infill opportunities.

Even behemoths like Target and Wal-Mart are getting in on going small. While neither brand is going to be giving up its megastores anytime soon, the fact that these iconic large-format retailers have been increasingly aggressive about rolling out smaller concepts for urban environments is a testament to the importance of the phenomenon.

To understand why that’s important, I think it’s helpful to put everything in context: to look back over the last few decades and appreciate the retail development patterns that have led to where we are today. In the ‘60s and ‘70s, a number of social and civic factors — most notably the game-changing influence of the new interstate highway system — helped to spur residential expansion out into suburban areas. As people moved away from the city into the suburbs and exurbs, retail followed. Retailers enjoyed relatively inexpensive land prices, abundant building space and booming new population centers.

By the early 2000s, the success of that approach had created a situation where a great deal of new retail was being built “on spec”: projects were moving forward based solely on the expectation of residential population growth. That development pattern hit a significant snag when the real estate crisis and the subsequent economic downturn materialized in 2008. When projected residential growth didn’t pan out, developers and retailers were left high and dry. That turn of events has contributed to the state of the current retail landscape, where many high-growth markets have left large-format retailers in areas where the anticipated residential growth never occurred.

Stung by overdevelopment where retail potential doesn’t exist, it’s only natural that retailers would begin changing their approach. Today, retailers and developers are essentially exclusively focused on population in place — even high-growth areas are treated with a certain degree of suspicion and caution. With more people moving back into urban areas (areas that have been frequently underserved with retail in the past few decades), retailers have understandably been eyeing those urban areas. Now retailers are focusing on answering two questions: where are we underserved, and what is the smallest size that will adequately serve that market?

For Wal-Mart, the answer to the first question is clearly urban markets. New urban Wal-Mart locations have opened in Chicago and Philadelphia, and the recent opening of two new Wal-Mart locations in Washington, D.C. has gotten a great deal of media attention. As for the second question, Wal-Mart is rolling out two new formats: the approximately 40,000-sq.-ft. Neighborhood Market stores, and the even smaller 10,000-12,000-sq.-ft. Walmart Express. Both are a far cry from the familiar bulk of an 180,000-sq.-ft. Wal-Mart Supercenter.

As for Target, the brand’s new CityTarget stores might be even more innovative. The first new CityTargets (approximately two-thirds the size of a typical Target) opened last summer in markets such as Los Angeles, Chicago, and Seattle, and showcased a soup-to-nuts redesign. From the signage, to the checkout lanes, to the trucks and delivery/operational logistics, virtually everything was slimmed down and made sleeker and more efficient for an urban context. CityTargets feature WiFi throughout, and have also embraced the store-within-a-store idea, with special areas dedicated to the display and sale of Apple products. Wal-Mart has made its own design decisions with an urban context in mind, including below-ground parking, apartment-style residential above, and a ring of smaller exterior retail venues around the outside of the store.

I also think there is more going on here than simply a need to design smaller formats for urban areas. The pressures of the recession reinforced the advantage smaller and more efficient footprints, with less overhead and unnecessary expenses. It’s a lesson brands have taken to heart. There’s also an emerging sense that bigger isn’t necessarily better anymore: the unspoken idea that a big store has a stronger appeal seems to be fading.

Ultimately, I think these urban retail design innovations are likely to begin to filter back out into the suburbs: urban redevelopment fueling more efficient, competitive and cost-effective designs across the retail landscape. Big isn’t going away, but the retail appetite for supersized venues seems to be waning, and I think the new normal is likely to be a series of smaller and more efficient concepts. I’d love to hear what you think, however: do you see more retailers “going small” in 2014 and beyond? Comment below or email me ([email protected]) to continue the conversation.

Click here for past columns by Jeff Green.

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