NEW YORK ( TheStreet) -- Target ( TGT) is looking to keep pace with Wal-Mart ( WMT), announcing during its media day that it plans on opening smaller-format urban stores.

The discounter already rolled out its first Manhattan store this year, and is now eyeing stores between 60,000 and 100,000 square feet. The typical Target store is between 125,000 and 180,000 square feet.

Target will open its first of these stores in Seattle, a block away from its Pike Place Market in 2012, and may also add these scaled-down stores in Los Angeles, Chicago, Boston and Baltimore.

This announcement comes after reports surfaced earlier this week that rival Wal-Mart is also looking at smaller real estate, as tiny as 20,000 square feet.

This expansion plan is expected to be further spelled out next month when Wal-Mart hosts its analyst day.

These trimmed-down locations are expected to mostly focus on grocery and fresh food items, and well as other consumer staples.

This, most likely, is the catalyst for Target's other initiative: adding grocery items to more than half its stores by 2011. The company's P-Fresh format will be in 850 of its 1,500 stores by the end of next year. Target expects P-Fresh will add 1 to 2 percentage points to its 2011 same-store sales.

Here, Target is once again hoping to compete with Wal-Mart, which sells the most groceries of any U.S. retailer.

Target also said during its analyst day that it will begin selling Apple's ( AAPL) iPad in stores this October. Wal-Mart will also carry the device in time for Christmas.

--Written by Jeanine Poggi in New York.

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