Minneapolis — Get ’em in, and get ’em in more often.
Target is tuning into frequency of visits as its key initiative for 2003, company executives emphasized at its annual shareholders’ meeting, held Wednesday at the Minneapolis Institute of Art here.
Food, pharmacy, one-hour photo, mom-and-baby merchandising and the bulls-eye logo Target Visa, all of which coax customers into Target stores more often, will be expanded and aggressively promoted. The company remains committed to its grocery SuperTarget format, planning to open about 30 supercenters — about one-third of its total retail expansion — this year. There are currently 102 SuperTargets in the 1,167 store chain. In addition, the company will unveil a new Target store prototype in October.
“Our SuperTargets have been highly successful in attracting the same guest who shopped at our discount stores with sharply higher frequency,” chief financial officer Doug Scovanner divulged in a press conference after the meeting. “Overnight, guest frequency increases between 50 and 100 percent.’
The company’s Internet sales and traffic rocketed 46 percent, said vice chairman Jerry Storch. “Our Internet sales are doing extraordinarily well,” he said. “It’s still a small part of our business, but it continues to show tremendous rate of growth.”
Powered by Amazon, the site includes product reviews and like Amazon, pulls up related products often purchased by customers who bought the initial item.
In a sense, the Web now replicates what’s happening at store level, with customers broadly shopping the floor. “When guests arrive at our stores, they tend to buy a complete and diversified basket,” Scovanner said. “The purchases tend to be far afield from the category that was top-of-mind when the guest entered the store.”
Several hundred people walked through security scanners to attend the perfunctory, 15-minute annual meeting, held in sight of Target’s glassy tower headquarters. A handful of shareholders lingered outside afterward, expressing disappointment that Target Corp. chairman and chief executive officer Bob Ulrich adjourned the meeting without the customary question-and-answer session.
“In today’s environment, where there is corporate fraud going on right and left, it’s giving the wrong message to the public when they won’t allow people to ask questions,” complained shareholder Aaron Epstein, who’d flown in from North Hollywood, Calif., to question the company about its credit operation. “Sears, Roebuck had a credit operation and they took a bath on it. What is Target going to do that they don’t fall into same trap?”
In a closed session with media, Target executives fielded just that question about the nine million signature Visa cards issued last year.
Scovanner called the card “appropriately profitable” and added that financial results “demonstrate quite vividly that we’ve been effective stewards of that capital that’s invested in those funds.”
Asked whether an emphasis on food potentially puts Target on a collision course with Wal-Mart, Scovanner responded: “We go head-to-head with Wal-Mart every day of the week, every week of the year.”
The company will continue to use third-party distributors and has no plans to build food distribution centers à la Wal-Mart, said Storch.
Target will, however, build two new import warehouses as part of an initiative to increase direct sourcing. The latter is a “first-order opportunity for Target,” wrote analyst Mark Miller in a recent research note for William Blair & Co. Direct importing of 30 percent of products, he calculates, could add 10 to 20 basis points annually to Target’s margins over the next five years. The company currently imports 15 to 20 percent of product without middlemen.
The company has finished drafting a new discount store prototype, which will bow in the Minneapolis market in October, according to Ulrich.
“We reinvent our stores every few years, but this year we think we have done more,” said Ulrich. Changes range from shifts in exterior architecture and parking lot configuration to interior visuals and merchandising. The company is paying attention to the placement of convenience categories as a means to boost sales in adjacent departments.
Categories perceived as growth drivers, including women’s ready-to-wear, girls’ apparel and children’s products, will gain territory, while “male”-oriented categories like boys’ apparel, sporting goods, automotive and home improvement, will erode. Footwear is also going to be scaled back.
Target Stores president Gregg Steinhafel said the company will weed out item redundancies, but will not axe men’s apparel brands. The customer should not perceive a reduction, he said.
“We’re not editing any brands or lifestyle looks,” he said. “If we have 10 racks of screen T-shirts this season, maybe we’ll go with nine [next season].”
Executives would not provide specific detail about store appearance, but Scovanner characterized it as “change by evolution” rather than a significant departure.
More dramatic change is in store for Marshall Field’s, which is in the process of overhauling its State Street flagship in Chicago. Single-brand islands will be replaced with lifestyle statements, said Linda Ahlers, president of the 62-unit department store chain.
“For instance, instead of having a section of the Columbia brand, we’ll have a statement about ‘Rugged’ and assort all the brands that encompass that lifestyle under the concept.”
The company is also leasing space to key vendors for in-store shops. Thomas Pink will have its first in-store boutique in the U.S. in Field’s State Street store.
Although the Target division hauls in 94 percent of company profits, Ulrich said the company is committed to its Mervyn’s and Field’s concepts.
“They add a lot of value, in scale and in cross-sharing of merchandise ideas,” he said.