A new Hollister store is coming later this month to New York, right down the block from Macy's, Target and Victoria's Secret in the bustling Herald Square shopping district.

The opening highlights Hollister parent company Abercrombie & Fitch's broader real estate strategy: Think small, not big, in a bid to boost profitability.

Abercrombie earlier this year announced it would be shutting its flagship Hollister location in the SoHo neighborhood in New York, along with a few other global flagship locations, which can span more than 40,000 square feet.

Instead, Abercrombie CEO Fran Horowitz told CNBC in a recent interview that "the flagship model is very outdated from where we are today," but "stores matter."

"Our store is evolving," she said. "The Gen Z and millennial customers are reacting different to the store." She called New York still a "very important market" for the brand.

Earlier this month, CFO Scott Lipesky said at a Goldman Sachs global retail conference that flagship stores have been "a drag on profitability."

"Part of this [approach] is a financially motivated decision, but also part of it is just ... it's not the brand experience we want to deliver," he added.

Both executives have said the smaller stores can be more profitable for Abercrombie because they include a greater suite of delivery options, like buy online, pick up in store, while taking up less space and thus costing less money from a rent perspective.

New York's new, smaller Hollister shop is set to open at 130 W 34th St. on Sept. 27. The company says it's signed a shorter-term lease on the space but declined to say for how long. It says it will "test and learn" at this location and continuously evaluate how long to stay there.

The new Hollister store will also include a space dedicated to Hollister's Gilly Hicks lingerie brand, which the company has revamped and is working to expand. In total, the store will span two levels and will be less than half the size of the now-shuttered SoHo store, Abercrombie said.

Hollister joins a whole host of other retailers focused on building smaller-format shops, including Target, Kohl's, Nordstrom with Nordstrom Local and Amazon with its pint-sized Go stores. The trend has accelerated as more shoppers are turning to the internet to buy things, and companies realize they don't need so much space to showcase inventory.

Abercrombie says it will open 40 new stores this fiscal year, net of any closures. It says it will end 2019 with more stores than in 2018, but less square footage overall.

Abercrombie shares are down about 20% this year.