The news: Costco and Target are among the retailers using affordable housing developments to expand into dense markets, per The New York Times. The projects are pitched as a win-win: Retailers gain access to scarce land in dense urban areas without taking on construction costs, while developers benefit from the draw of well-known tenants that can enhance a project’s appeal and support higher rents.

Zooming out: These housing tie-ups reflect a broader push by big-box retailers to shrink the distance between stores and customers.

• Ikea is expanding its small-format footprint, including plan-and-order points that let shoppers work with staff and pick up online orders.
• Best Buy is opening small- and medium-format stores designed to reach underserved or high-demand areas.

Stores function as three-dimensional billboards that reinforce brand visibility while making omnichannel shopping easier. Incoming Best Buy CEO Jason Bonfig said placing stores closer to customers leads to sales and share gains, along with “notable online growth and material lift in our multichannel engagement within the first six months.”

That same logic applies to housing partnerships. Embedding a store in a new development gives retailers an opportunity to win residents before they establish shopping routines elsewhere, while public financing can help offset real estate costs.

Implications for retailers: Housing partnerships give retailers like Costco and Target a new way to expand in markets where land and construction costs would otherwise be prohibitive, while offering developers strong anchor tenants.

While this approach differs from the small-format strategy used by Ikea and Best Buy, the objective is the same: Meet customers where they live. As more cities and states offer incentives to spur housing development, retailers that match their formats to local demographics could gain access to attractive markets.

But fit matters. Costco’s membership model skews toward higher-income shoppers, making it better suited to certain markets, while other retailers may find stronger alignment in different neighborhoods.

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