WHITE SULPHUR SPRINGS, W. Va. — America might have two retail behemoths by the end of the decade: Target Corp. thinks it could be four times bigger within 10 years.
This story first appeared in the June 17, 2002 issue of WWD. Subscribe Today.
The nation’s second-largest discount chain after Wal-Mart Stores Inc. has set the goal based on applying its upmarket strategy to the supercenter food format, said Jerry Storch, Target’s vice chairman, speaking here at a workshop session last week at the annual executive conference of the Grocery Manufacturers of America. Washington-based GMA represents food manufacturers that together have net sales in excess of $450 billion annually.
Application of Target’s differentiation tactic to its supercenters has the potential to yield a company that’s $45 billion larger, at the conclusion of the next decade, than would be the case if growth were centered only on discount stores, said Storch. He calculated that, should Target opt to grow by rolling out discount stores alone, it’s possible to project a company with a top line of about $115 billion could result in 10 years. However, rolling out 30 to 40 SuperTarget stores annually could produce a company with a top line of $160 billion at the conclusion of that period.
“This is not a projection, but a mathematical formula applied to the number of stores,” Storch emphasized.
During the fiscal year ended in February, Target’s annual sales were $39.89 billion, of which the Target division generated $32.59 billion, or 81.7 percent. The Minneapolis-based retailer has about 1,050 conventional discount stores spread across 47 states. It also has 75 SuperTarget stores in 17 states. SuperTarget is the company’s supercenter format consisting of a full-line supermarket and a full-line discount store under the same roof. Target also operates 264 stores under the Mervyn’s banner and another 64 as Marshall Field’s department stores.
But when it comes to growth, supercenters have emerged in recent years as the main means among discount operators. In particular, Wal-Mart Stores has latched onto the food format to propel growth. In the U.S., it now operates about the same number of supercenters alone — 1,113 as of May 31 — as Target operates stores under both the SuperTarget and Target banners. Wal-Mart also boasts 1,614 Wal-Mart discount stores and 509 Sam’s Club warehouse stores in the U.S. and nearly 1,200 stores in other countries.
As reported, Target said last month, upon the release of its first-quarter earnings, that it had doubled its expansion plans for its SuperTargets, planning on 150 by 2004 and 400 by 2010.
Of course, even if Target maintains its expansion plans for supercenters, it still would lag far behind Wal-Mart by the end of the decade. Wal-Mart is the world’s largest company, with sales of $218 billion annually. The company aims to have a 15 percent profit return each year and plans to add 30 million square feet to its retail space this year alone in the U.S. It will increase its international retail space by 10 million square feet, H. Lee Scott Jr., Wal-Mart’s president and chief executive officer, told the company’s annual meeting in late May.
In his presentation, Storch obliquely acknowledged the Wal-Mart ascendancy in discounting: “We’re fierce competitors. We’re locked into a very heavy battle in our marketplace, and we want to win.”
Further, Storch acknowledged that Target won’t win that battle by catering to the price-driven segment of the market: “If we’re in the business of selling the same stuff that the guy down the street has, we’re not going to be able to sell it for more. I don’t care how big the store is or what it looks like.”
On the other hand, it’s not possible to toss the concept of price completely out the window. “As for the cost structure, you can’t be too far away from your competitor, or soon you’ll have an unsustainable business proposition,” he said.
Given those dynamics, Storch said Target will endeavor to apply its differentiating strategy to food. “Our mantra is to bring fashion to food.”
Fashion is what Target seeks to deliver in a bid to lift it above the competitive fray. In keeping with that, its objective is to reach a demographic somewhat above that sought by its competitors, with such private label fashion lines as Mossimo and Stephen Sprouse and home furnishings lines by designers Michael Graves and Philippe Starck. Target’s average demographic is a 44-year-old shopper with a household annual income of $51,000. Some 80 percent of its shoppers are female, of which 39 percent have completed college and 43 percent have children in the household.
But what constitutes food fashion to that demographic? Storch maintained that the concept of “fashion” or “trend” is easily misconstrued, but that it’s fundamentally not much more than delivering unique products to the grocery shelf in a timely manner.
“This is something frequently misunderstood about Target. It’s said we’re a trend merchant delivering fashion. So [vendors] frequently bring to us oddball stuff. But that’s not it. Trend doesn’t mean carrying stuff that doesn’t sell. Trend means trying to be first, trying to be fast.
“Trend may mean no more than taking large-sized cookies, downsizing them to small cookies and putting them in a resealable bag.
“We’re focused on making sure our grocery store matches our discount store as far as the quality of what’s sold there and the look and feel of the store. This is what we do at Target. We offer differentiation, which is a uniqueness that’s perceived by the customer.” Storch said any company that wants to grow should apply similar principles, to discover what it does better than other members of its competitive set and focus on what that is.
“A lot of retailers, I believe, have made a terrible mistake by trying to serve everybody. That doesn’t work in our business, or any other. You have to do a frank assessment of your company and your competitors. What are you good at? What’s important to the customer segment you want to serve? Do that.
“In every case, there’s something you can do better, except in the case of companies headed for extinction.”
Editor’s note: David Merrefield is editorial director of WWD’s sister publication Supermarket News.”