TARGET ENTERS SUPERCENTER FRAY

Byline: Mark Tosh

NEW YORK--Target will open its first supercenter Sunday in Omaha, Neb., mounting a counterattack to strategies already advanced by Wal-Mart and Kmart.
Called Super Target, the 190,000-square-foot center--the largest Target to date--includes a full-line, 50,000-square-foot supermarket and a total of 64 checkouts. There also is a cafe, a sushi bar and a juice bar, the kind of amenities often seen in upscale groceries, but generally not in discounters.
As the supercenter competition intensifies, however, Target has a lot of ground to make up.
Wal-Mart operates about 150 supercenters and plans to open 100 more this year, including 85 that will be converted from the smaller discount format. Kmart has 72 Super Kmart Centers and plans to open 20 more this year.
Regional discounters Fred Meyer Inc., Portland, Ore., and Meijer Inc., Grand Rapids, Mich., each operate about 85 supercenters.
"Target had to step up to the plate," said Saul Yaari, an analyst at Piper Jaffray, an investment banking firm. "It's not that they want to deal with food. They would have liked to stick to opening more regular stores. But they have to go into supercenters because of competitive situations."
He added, "We think the fact that Target is a latecomer to supercenters does not necessarily mean that they have missed anything. Actually, they could have learned from the mistakes of the others and do a better job, the same way they did in larger discount store formats, such as Greatland, which they were the last to develop."
Super Target's general merchandise areas are modeled on Target's Greatland format, which has wider aisles, better fixturing and more floor space than the company's traditional discount units. Greatland stores average about 125,000 square feet.
The second Super Target, a 160,000-square-foot version, will be unveiled in October in Lawrence, Kan., according to a Target spokeswoman.
Target recently acquired a 180,000-square-foot Twin Valu supercenter near Cleveland from Supervalu, a wholesale food distributor that will supply groceries to the Super Target in Omaha. Target would not comment on its plans for the site, although it could become another Super Target.
In 1996, analysts expect Target to open supercenters in Elk River, Minn., Champagne, Ill., and two other undisclosed locations. "We think it's a strategy worth testing," the spokeswoman said. "We see that when people have less time, one-stop shopping becomes a convenience. It seems like a strategy that can work."
She declined to provide a volume estimate for the Super Target in Omaha or to provide details on 1996 opening plans.
Supercenters, which are a refinement of the European hypermarket format, average about 160,000 square feet and achieve annual volume of $55 million to $65 million, according to a recent Management Horizons report. About 55 to 60 percent of the sales are generated from the general merchandise side and earnings before interest and taxes total about 5.5 percent of sales. Management Horizons, a division of Price Waterhouse, estimated the start-up costs of a new supercenter at $11.2 million and a break-even sales level of about $44 million. Hypermarkets, which both Wal-Mart and Kmart tested briefly, are usually larger and require greater investment and break-even sales.
As Target, the nation's third-largest discounter, experiments with the supercenter format, it continues to rapidly roll out traditional discount units. A division of Dayton Hudson Corp. with an annual volume of about $12 billion, Target operates 611 stores and expects to open 70 more this year.
Target chose Omaha for its first supercenter since it already has a strong presence there with three discount stores, and because the supermarket competition makes it a "good place for a test," the spokeswoman said.
"What we are really depending on is that shoppers know it will be a Target and know that we will offer the same quality when it comes to groceries," the spokeswoman said. "We're banking on our good name and reputation."
Randy Rients, general manager of the Super Target in Omaha, said if the store is ready early enough, he hopes to have a soft opening for members of local nonprofit organizations today or Thursday. Rients said Target plans to survey customers in Omaha and Lawrence this year to determine what they like and dislike about each supercenter. "I'm from the Twin Cities," he said, "and the analogy I use is it's kind of like when the Mall of America opened in the Twin Cities. That's what Super Target is to Omaha. There's lots of excitement, lots of curiosity."

load comments
blog comments powered by Disqus