The retail world is in for some big changes. Due to market saturation, many retail giants are abandoning their big-box roots in favor of smaller outlets. But not every retailer believes that small stores lead to big growth. So what are the retailers up to, and what does that mean for investors?
Little plans
During the 1990s, Wal-Mart (NYSE: WMT ) steamrolled the competition with its supercenter stores. Now the company is beginning to exchange that massive model for a series of smaller express stores.
A Wal-Mart Express can be as small as a 7-11. It targets previously untapped rural locations with markets that can't support a supercenter-size store, as well as urban areas in which there are land constraints.
The new store model aims to reignite growth for the retail giant by reaching a new customer base. Wal-Mart plans to construct hundreds of these stores over the next few years in order to test the market. In addition to its own construction efforts, some observers believe Wal-Mart might acquire a company such as Rite Aid (NYSE: RAD ) to expedite the process.
At its peak, Wal-Mart built around 350 supercenters a year. If this new model is successful, management expects express stores to arrive at a much faster rate.
Rivals have begun to follow suit. Target (NYSE: TGT ) is launching a smaller store model in urban areas next year. Initial plans call for smaller stores in 11 new cities in 2012.
The mini-Target store will be roughly half the size of the typical full-size store, and will mainly offer the daily essentials. Like Wal-Mart, the smaller store format gives Target better access to urban shoppers.
Best Buy (NYSE: BBY ) is making small plans as well. The company aims to cut overhead costs by reducing square footage in existing stores.
In addition, the company plans to open 600 to 800 smaller stores over the next five years, focused on serving the rapidly growing mobile device market. The move could mean trouble for Radio Shack (NYSE: RSH ) investors -- unless the rumor about Best Buy buying Radio Shack comes to pass.
Rumors have also surfaced again recently about Best Buy acquiring GameStop (NYSE: GME ) . Both potential buyout targets could be a good fit for Best Buy's small-store strategy.
Big plans
In contrast, Big Lots (NYSE: BIG ) believes that bigger is better. The company is taking advantage of the depressed real estate market to acquire and move into property vacated by larger retailers. Thus far, Big Lots' larger locations are performing well. As a result, the company plans to add roughly 90 jumbo-sized stores this year.
Where to invest?
Whatever you decide, remember to research these stocks for yourself before pulling the trigger. And keep an eye on the rapidly changing retail world.
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