Evaluating the role of smaller store formats

A smaller store format is useful when it serves a shopping task that a full-size location cannot serve as efficiently. Its value may be convenient access, a focused range or a nearby collection point. Judge it by that role and by its contribution to the whole network, not by store count or sales density alone.

Identify the job of the format

A small site built for quick top-up purchases needs a different range from a warehouse intended for planned, larger baskets. A trade counter may prioritise speed and stock relevant to professional customers. These are possible design choices, not automatic advantages of a small floorplate. Write down the target trip, expected basket, hours and the products that must reliably be available before comparing formats.

Public announcements can reveal whether a retailer treats small sites as a distinct format. In 2020, Wesfarmers announced that about half of Target Country stores, 52, were suited to conversion to smaller-format Kmart Hub stores, meeting criteria including location, population catchments and store size. That signals a planned mixed footprint; it does not show how much either format sells or earns.

The same announcement notes that Target's costs included operating and supplying a large network of physical stores in regional Australia of varying sizes and ranges. That is a reminder to check labels before combining locations.

Kmart Hub Stores: Target Country Conversion Criteria

Wesfarmers Retail Network Insights (2020–2026)

Compare the full operating model

Less floor area can mean lower total occupancy cost, but it may also mean less room for stock, narrower choice and more frequent replenishment. Compare rent and fit-out with staffing, delivery frequency, stock availability and the cost of handling returns or collections. If the small store depends on a nearby warehouse or distribution centre, include that support in the assessment.

Sales per square metre is especially easy to misread. A compact shop can have high density because it stocks only fast-moving lines. That does not establish a higher store contribution after labour and supply costs. Compare stores serving similar customer tasks, and consider contribution per location and per catchment alongside density.

Small vs Large Store Formats: Key Operating Differences

Look for network effects

A small format may extend reach into a catchment where a large store would be unsuitable. It may instead take sales from a nearby branch without creating much new demand.

Review changes in the surrounding network after opening, including online orders fulfilled or collected locally. A customer who visits the small store for an urgent item may later buy a broader range elsewhere; public aggregate data will rarely identify that path.

A format trial should therefore have an explicit test. Set the intended role, the comparable locations or catchments, the trading period and the measures of success before interpreting early sales. Check availability and repeat visits, not just opening-week traffic.

If the retailer later changes the assortment, hours or site size, treat the revised format as a new test rather than extending the first result without qualification.

Evaluation Criteria for Small Store Formats