The big brands identified that after the pandemic the user trend in sales has changed, e-commerce has gained popularity, and shopping malls are not what they used to be. With this in mind, business owners are increasingly exploring solutions, such as small-format stores, to stay competitive and maintain a close tie with their customers.

Well-known brands such as Macy's and Ikea have already adopted this new small store format in the suburbs to get even closer to their clients. These retailers are embracing a downsized approach with 75 to 500-square-foot stores. This shift allows for a more curated selection of products compared to the vast offerings found in traditional stores that sprawl across 150,000 to 200,000 square feet.

More than 70 new Ikea locations opened globally in 2023. The majority were small stores and plan-and-order locations, two formats the company has tested in cities like London, Stockholm, and New York. Meanwhile, as part of the accelerated expansion of its small-format store strategy, Macy's plans to open 30 small-format stores in the U.S. this year and triple that number by fall 2025.

According to their experience, smaller format stores offer a glimpse into the future of retail and bring several advantages, including:

#1 Cost efficiency: Small-format stores typically require smaller buildouts and operating costs than a large retail format. Compared to big box stores, they require fewer employees, consume fewer utilities due to their size, and have lower rent, thanks to the reduced square footage. This financial benefit is particularly attractive during economic downturns.

“Our small-format stores are efficient to operate, provide the customer with a shopping alternative within our omnichannel ecosystem and present a unique opportunity to target high-traffic shopping centers. Our small-format strategy is one way we intend to harness the full power of the Macy’s brand to deliver sustainable, profitable sales growth for Macy’s.”
Adrian Mitchell, COO and CFO at Macy’s, Inc.

#2 Agility and flexibility regarding location and layout: Retailers can quickly adapt to changing market conditions, test new products, and implement new concepts without the significant investment required for larger stores. This agility allows brands to stay ahead of trends and respond to customer demands more effectively.

IKEA has been working on these small format stores for the last four years. This furniture brand wanted to attract city dwellers with items customized for urban housing, focusing on bedrooms, baths, and kitchens, which are three core areas of the home that many people need more assistance with in planning and designing. Therefore, these stores mix design consultants on-site with technology to allow customers to see all possible options and create an omnichannel experience.

#3 Sustainability: Smaller stores drastically cut energy use for heating and cooling, like a house, compared to a mansion. This benefits the store's footprint and encourages the "15-minute city" concept, where people can access essentials locally, reducing emissions from long commutes. Plus, smaller stores are cheaper to build and maintain, minimizing the environmental impact of materials and construction.

“We’ve opened two touchpoints in LA, focusing on being more accessible to many people in areas where we can’t put a larger footprint store.”  
Selwyn Crittendon, business development manager at Ikea US.

#4 Community engagement: This format allows huge brands to reach shoppers living in areas where their typical big-box stores aren't located, fostering a sense of community by integrating into the local neighborhood.

“So far, we have seen positive sales growth. Customers like our curated product offerings and the off-mall locations help us bring the Macy’s brand to a lot more people.”
Jeff Gennette, CEO at Macy’s.

#5 Public safety benefits from this method include fewer entrances and exits and simplified evacuation strategies. Theoretically, this is easier because of the space's measurements. However, because of how retail businesses operate, there is a flow of people through the streets, promoting social control and increasing urban safety.

These movements in the sector require retailers to adapt. Keeping abreast of trends, responding to user requirements, and being open-minded to possible changes are probably more essential than never to remain in the market and grow the business. In this landscape, small-format stores have emerged as an initiative that is cost-convenient, UX-friendly, and more sustainable. Do you want to remodel your store and join the wave? Let’s talk!