Greeley, Colo. — Target is rolling out its next phase of stores — and they’re all about lifestyle.
In its new format — as seen in its unit here — there is an emphasis on shopping by “life occasion,” as well as lavish, wall-size images of its designer apparel, higher ceilings, better lighting and a floor clean enough to picnic on.
This story first appeared in the March 31, 2004 issue of WWD. Subscribe Today.
The reengineered store, which has been in test mode since October here but began rolling out to 25 markets nationwide this month, exemplifies what Target does best: construct pretty, airy stores that take the low-budget aftertaste out of discount shopping.
But appearances can be deceiving. Despite the rosy looks of the design, industry experts say the retailer faces several warty challenges.
Among them: price deflation puncturing high-margin categories such as apparel and electronics, tough comp-store sales comparisons, the continuing onslaught of Wal-Mart Supercenters and Wal-Mart’s ambitions to become a fast-fashion force.
The stakes are such that, as Bain & Co. retail director Darrell Rigby puts it, “Target will need every possible dollar and brain wave focused on competing with Wal-Mart if they hope to maintain or gain market share. They can’t afford to subsidize [Marshall] Field’s and Mervyn’s while fighting such an intense battle.”
But with this new store format — which industry experts estimate took the retailer more than two years to conceptualize and test — Target is putting a stake in the ground about what it does best and what businesses it can own.
And women’s apparel, it clearly believes, is one such business.
In its new format, the retailer has reoriented and enlarged ladies’ apparel, to roughly 10,000 square feet from an estimated 5,000 square feet.
A Target spokeswoman did not respond to requests for specifics on the new store design, but the store looked to be slightly more than 100,000 square feet. It replaced an 88,000-square-foot older store, according to store associates in this fast-growing Denver suburb, who wore R.I.P. T-213 (the number of the closed store) stitched onto red polo shirts.
Hugging the far right wall in the new format, women’s wear stretches from the front of the store to the back. On a recent visit, the department led with a colorful blast of Mossimo swimwear, typically a strong performer and a symbolic statement that Target is not going to be shy about protecting its turf — or its surf, as the case may be.
Instead of posters and a few wall racks that divided the old-format apparel department into “cubicles” of misses’, junior and activewear, the new department features enormous wallboard fashion shots of its designer brands, starting with Mossimo and progressing down to new Baby-Boomer brand Linden Hill at the back.
The changes give apparel new “grandeur,” noted Marshal Cohen, co-president of NPD Fashionworld, who has visited several of the new-format stores that opened this month.
“Target is making a commitment that says, ‘We’re putting our best foot forward’ with apparel,” he said, “which they still do better than anyone else [in the discount channel].”
Besides the ones hanging on the walls, the other big picture is that Target desperately wants to increase the number of times a customer visits each month.
More transactions, analysts pointed out, is the only way for Target to cope both with deflation (which nipped $1.5 billion out of sales last year, according to Target chief financial officer Douglas Scovanner, speaking on the company’s year-end conference call) and Wal-Mart Supercenters.
The situation can be summed up in a statistic: Wal-Mart customers hit the retailer’s Supercenters six to eight times a month, while SuperTarget shoppers stop in only two to three times a month, according to Smith Barney analyst Deborah Weinswig. Wal-Mart plans to add (including relocations) 220 to 230 Supercenters this year while Target has announced plans for only seven SuperTargets this year.
Bain’s Rigby noted, “As Wal-Mart’s Supercenters grow, retailers such as Target must find ways to stay top-of-mind with their core consumers. Job one is to keep customers coming into the store as frequently as possible.”
According to Bain research, Target’s customer is, on average, five years younger than Wal-Mart’s, with a household income that’s $5,000 to $10,000 higher. “They are more comfortable on the Internet and a little more focused on convenience,” he said.
Recognizing those realities, Target has arranged the new format in terms of the common “themes” that cause a customer to shop — a need for greeting cards or gift supplies, seasonal apparel, baby gear or high-consumption foods. It’s hoping that assembling a mix of daily “needs” with the higher-margin “wants” can convince customers to visit more often and spend more when they do.
The new layout reflects the retail industry’s growing interest and sophistication in a new form of category management, known as consumer marketing at retail. In sum, CMAR moves the focus from selling a particular product to clustering goods around a particular consumer’s needs.
The store in Greeley shows how Target used CMAR insights to play musical chairs with several of its departments, and even with some categories within departments.
For instance, instead of putting ladies’ and men’s apparel slightly left and right of center, respectively, women’s apparel is now on the far right (or left, depending on the entrance configuration) and a scaled-down men’s wear department is at the back next to electronics.
Taking that central spot is an infant department resembling a mini-me version of Babies ‘R’ Us. It stocks everything from jars of mashed prunes to Amy Coe vintage-floral crib bedding, one of Target’s latest designer partnerships. Infants’ is nestled up to a larger lingerie and loungewear section, which now also includes Liz Lange and Target’s private label, In Due Time, maternity lines. That whole cluster is approximately where men’s wear used to reside.
Part of that is simple category math. The men’s wear market has been an uphill battle for several years, while infant and toddler apparel sales across all channels climbed 4 percent in 2003 to $10.6 billion, according to The NPD Group. When a category is that strong, it can spur sales of everything around it, which is presumably one of the reasons why Target moved maternity out of women’s sportswear and next to infants’.
Although women’s wear has decamped from that center-store post, it has not lost status at Target, Cohen contended.
“Conventional wisdom used to be that putting something floating left or right of center would force people to go through,” noted Cohen. “What they found is that people shop big boxes somewhat like a grocery store. They grab a cart and head to one side.”
As well, Target’s long women’s department stands apart, visually, from the centralized grid of apparel racks used in Kmart and Wal-Mart. A wide aisle runs along the department, allowing customers to stroll along and move in when something appeals to them.
Based on anecdotal evidence in the Greeley unit, these new stores are pushing more fashion and stylish activewear. Danskin’s two Target-exclusive lines — Pro Spirit and Freestyle —showed a range of Pucci-esque and Mod prints on yoga tops.
Cherokee had a smaller presence here, only four racks, which may indicate the retailer is becoming less reliant on its long-running Americana house brand.
Linden Hill, the new misses’ brand reminiscent of better line Eileen Fisher, goes after Cherokee’s Baby-Boomer demographic. Linden Hill showed Tencel skirts and jackets, each priced $27.99, under a caption touting the fabric’s “ease.”
Apart from a couple of carousels of Levi Strauss Signature junior denim, the only new fashion properties were designer extensions: Isaac Mizrahi swimwear and a rack of Swell activewear (sports bras, yoga pants, shorts). That’s the third apparel-category extension for the housewares brand designed by Cynthia Rowley, which already does intimates and sleepwear.
Analysts, who noted that both Wal-Mart and Target performed relatively poorly with apparel last year, encouraged Target to dial up the attitude — and downplay Merona basics — in its apparel department. They pointed out that Target, which sizzles in its marketing and television commercials, sometimes lacks the same vigor at store level.
“Target feels a little calm. It’s a bit of a disconnect from all the excitement and energy of their ads,” observed Jim King, co-chief creative officer at Toronto-based retail design consultancy Perennial Inc. “Their stores can lack a little of the wonderful retail excitement that someone like H&M or Victoria’s Secret or even Wal-Mart generates by having a little chaos.”
Target’s “marketing is so good that it’s actually more fashionable than the merchandise in stores,” said Bain’s Rigby. And while Target still leads the discount pack in looking trend-right, “specialty retailers are doing such an impressive job of providing fast-fashion at a reasonable price that Target will have to lengthen their stride to stay competitive,” he added.
When asked on the most recent conference call how Target plans to improve apparel this year, cfo Scovanner responded briefly that focus was to “upgrade and improve our own-label assortments.”
Analysts weren’t won over.
“Where is their next Isaac?” asked Northeast Securities analyst Eric Beder. “Target needs the excitement to draw people to its stores.”
Perhaps the redesigned store’s most striking innovation is its pantry section, which is 50 percent larger than previous convenience food sections, according to Target Stores president Gregg Steinhafel, on the conference call. No mere selection of chips, soda and candy, the pantry includes everything from private label frozen salmon fillets to Paul Newman salad dressing, as well as frozen foods, milk, bread, cleaning supplies and paper products, but not meat or fresh produce.
An old industry gauge on how fast a store’s goods turn is to check the bread aisle to see how many loaves are on the shelves and if the expiration dates are out. Since the bread companies manage the stock level (and absorb the cost if the goods go stale) the bread vendors will stock thinly if sales are slow.
A veteran food industry executive who toured the Greeley store noted that the full shelves, with loaves pushed all the way to the back, and tight-clustered expiration dates several weeks out indicated robust sales. Nonetheless, Target still had a thing or two to learn about local food, since several potato chip bags were on the point of exploding and others had split seams. Because of the high altitude, chips that aren’t bagged locally bloat and pop as the air inside expands.
But because a pantry section can be a huge traffic booster, it seems Target is likely to be collecting more chips than spilling them.
Gary Ruffing, retail director at consultant BBK Ltd. and a former Kmart vice president, said when Kmart installed a pantry section in a store, first-year sales went up “in the double-digit range.” He said Target could easily be seeing a similar boost in its sales.
“The pantry department has a lot of clout,” he said. “People at Kmart used to say, ‘If you aren’t selling milk to mom, you aren’t selling anything else.’”
If adding more food is all aimed at making Target’s customers visit often, preliminary indications suggest the chain is on track.
Speaking on a year-end conference call in February, Scovanner said same-store transactions counts were up 4 percent since the beginning of 2003, a result that “pleased” him and that he expected to continue into 2004.
Northeast Securities’ Beder wasn’t bowled over by that number. “Wal-Mart drives consistent comps because they have frequency and take an increasing share of customers’ purchases,” he noted. “The question with Target is, can this model get that frequency and the wallet share? Target’s customer base [because it’s more affluent] has many more shopping options than Wal-Mart’s and they use them.”
In a research report, Beder called the discounter’s growth in the past three years “mediocre” and noted that, in the same period, Target Stores has been “unable to consistently register reliable growth when confronted with difficult comparisons at either the same-store sales or operating profits lines.” The chain has only recorded quarterly income growth at or above its goal of 15 percent, in five of the last 12 quarters, Beder pointed out.
Smith Barney’s Weinswig also correlated Target’s financial performance to a need for a redesign.
“If you look at it on a two-year stack, their comps are still not as strong as Wal-Mart,” she said. “The frequency-of-visit thing is so important and that’s why this format is so critical.”
Overall, she views the format as “more female friendly,” but remains concerned that the shift to more high-frequency, low-margin products such as food will continue to pressure Target’s profit margins.
Regardless, Target, known to be diligent and thorough about testing new formats against a group of control stores, seems confident that this format is the right step.
According to store associates at Greeley, the company is planning to remodel two other Denver-area stores, one in Boulder and one in Arvada, Colo., to mirror Greeley. That’s on top of the 25 March openings in markets ranging from Bangor, Maine, to West Hollywood, Calif. In addition to Hollywood, Target is putting in four other California doors (La Quinta, Redlands, Sacramento and Stockton North).
“These stores provide more guest-friendly merchandise adjacencies, offer assortments in which key categories have been expanded or edited to incorporate our guests preferences and more effectively convey value in category dominance,” said Steinhafel on the conference call. “We believe these changes enhance Target’s brand image and give our guests more reasons to make Target their preferred shopping destination.”