Walmart and Target may have seemingly saturated the suburbs with locations, but both have struggled to thrive in cities. Now the big-box retailers are radically rethinking the size of their stores. Target announced that it will open its first small-footprint outposts in L.A. and Seattle next year, with plans to push quickly into 12 other cities. Walmart, which has experimented with smaller prototypes called Neighborhood Market and grocery-specific Marketside, plans on opening two dozen microstores in San Francisco and 30 to 40 small-format storefronts across the U.S. before the end of 2012. But tailoring scaled-back offerings to diverse neighborhoods while still delivering low prices could prove tough, says Brian Sozzi, retail analyst at Wall Street Strategies. "Logistically, it could be a nightmare," he says. "But will they undercut mom-and-pop shops? You bet."