Costco and Target operate under very different models.Costco relies on membership fees to generate revenue, and some of its best deals come in the form of bulk pricing.Target’s focus is a wide assortment of products that cater to customers looking to buy essentials and score the latest trends. Whereas Costco is almost obsessed with offering the lowest prices in retail, Target’s aim isn’t necessarily to be the cheapest, but rather, win customer dollars based on product appeal.One thing both chains have in common is that they’re looking to expand. But given their respective footprints, finding room to grow has become increasingly difficult.Now, both Costco and Target are taking a similar approach to squeeze their way into urban areas. And it’s a strategy that could pay off big time.Costco and Target face an urban expansion challengeCostco and Target have ambitious plans to add new locations across the U.S. in the coming years. Target shared earlier this year that it expects to open about 20 new stores in 2026 as part of a broader strategy that includes adding hundreds of locations over the next decade. Related: Big changes could be in store for CostcoThe company said the investments are designed to fuel its next chapter of growth while helping it reach more shoppers in existing and new markets. “Guests tell us all the time they want a Target closer to home, and this investment helps us do exactly that,” said Adrienne Costanzo, Target’s chief stores officer. “That means even more neighborhoods will get the full Target experience.”Costco is also steadily expanding its footprint. The warehouse club continues opening new locations throughout the U.S. and internationally. The company also said during its most recent earnings call that it’s targeting 30 or more net new openings per year in the coming years.But while both retailers are eager to grow, they’re running into the same obstacle — finding enough space in densely populated areas where potential customers already live. That makes expansion especially challenging in cities where land is scarce, development costs are high, and local zoning rules often limit what retailers can build.
Both Costco and Target have ambitious plans to add new locations.Shutterstock
Costco and Target launch innovative store models to fit into citiesRather than wait for ideal parcels of land to become available, Costco and Target are embracing a new strategy to increase their urban footprint. Both companies are increasingly partnering with developers to build stores as part of mixed-use projects that include affordable housing.Instead of constructing stand-alone retail locations, the stores will become part of larger developments that combine apartments, parking, and commercial space on the same property. More Retail:Costco sees major shift in member behaviorRetail chain shuts all locations as legal changes hit industryCostco makes major investment in online shopping for membersThe strategy is a win for many stakeholders. “The developer gets a well-known store brand that serves as a great perk to attract residents, while the retailer gains access to a busy new neighborhood with more foot traffic than traditional, stand-alone locations,” David Leopold, head of affordable housing at commercial real estate firm Berkadia, told The New York Times.Plus, in many cases, the housing component helps projects gain support from local governments that are eager to address housing shortages.For shoppers, the result is something that would have seemed unlikely just a few years ago: giant stores integrated directly into residential neighborhoods rather than sprawling suburban shopping centers.While Costco and Target compete in many categories, they’re arriving at the same conclusion — future growth will require creative solutions. Building stores alongside affordable housing not only helps solve a real estate problem, but also positions both chains closer to the customers they hope will keep driving growth for years to come.Maurie Backman owns shares of Costco and Target.Related: Target wants rich parents to shop at its stores