NEW YORK — Target Stores has built its name on exclusive brands, and its plans for food continue the process.
This story first appeared in the October 15, 2002 issue of WWD. Subscribe Today.
Several new brands are headed for the Target chain, aimed at feeding the accelerating growth the nation’s second-largest discount chain has planned for its food business. They include Starbuck’s coffee shops (already present in all 94 SuperTargets), and partnership deals to add Einstein Bros. Bagels, Cinnabon, and Cheesecake Factory products. In citing those upcoming debuts, Lois Huff, a vice president at Columbus, Ohio-based consultant Retail Forward, said such partnerships, along with plans to emphasize organic foods — including a range from furniture designer and architect Philippe Starck — will go a long way toward making Target a “bigger player” in food while reemphasizing its niche at the upper-priced end of the discount sector.
The addition of such names are also expected to help keep Target’s top line heading north at a healthy pace, even as some are predicting the 1,189-unit discounter will need to set its sights on international markets, in as few as five years, to sustain the lofty increases anticipated by shareholders. Retail Forward, for one, is pointing to Canada — where it would face stiff competition from Wal-Mart — as Target’s most likely first foray beyond these borders.
Also on tap, in the apparel area, are a Liz Lange maternity collection, set to hit the stores late this year, and possibly a line of Isaac Mizrahi accessories, as reported. Target’s burgeoning home portfolio is due to add Kitchen Essentials, and a range of Cynthia Rowley home goods dubbed Swell, next spring. Stalwarts Sony and Calphalon have been added as well.
A Target spokeswoman Friday declined to comment.
“They plan to boost their stockkeeping units by 20 percent in the fresh and frozen areas of their SuperTarget stores,” noted Huff, whose firm last month published a report entitled “A Moving Target,” written by Retail Forward vice president Sandra Skrovan. “We think, in 10 years, Target could have a $45 billion food business and an 8 to 9 percent share of the country’s grocery sector.” And food is expected to drive business at the 30 to 40 SuperTargets the chain plans to roll out annually over the next 10 years, which, along with the discount stores it opens, are expected by the Minneapolis-based company to produce sales of approximately $160 billion by 2012.
An association matrix study, recently conducted by market researcher and consultant Brand Keys, revealed consumers think Target and Sears would do the best job delivering prepared foods, among a half-dozen mass merchants, which included some that don’t currently carry it. By comparison, Wal-Mart, Kmart and J.C. Penney were seen as being most able to merchandise grocery staples. “Our interpretation of these results is that the respondents rated the shopping experience at Target and Sears higher than at the others [which included Best Buy], and this ties in with their perceived ability to offer prepared food and take-out items,” said Brand Keys founder and president Robert Passikoff.
Of course, Target needs to maximize the productivity of its brand portfolio — both in terms of sales per square foot and its ability to deliver a style-driven experience throughout the store, including food, as a point of differentiation. Observers voiced varying views over whether the best way to do so is to keep piling on new names or to simply focus on the brands now in the store’s stable.
“The brand portfolio is going to be viewed by the consumer according to what arena Target plays in,” Passikoff contended. “If they plan to play with the Wal-Marts and Kmarts of the world — even though they have pretensions to brand greatness — they can have as many brands as they want,” he said, alluding to the ability those names give Target to differentiate from those discounters, while competing with some higher-priced players, like Kohl’s, Sears, and J.C. Penney. “I’m not sure there’s any confusion among consumers about what brands Target sells,” Passikoff added. “It’s more a reverse phenomenon: When they come in and find a brand isn’t there, it has a negative effect.”
Nor did Christine Beauchamp, a manager in the consumer goods and retail practice at The Boston Consulting Group, think Target is in danger of confusing the consumer or tangling its supply chain with its growing roster of labels. “Having a portfolio of designers does contribute to the class-of-mass phenomenon,” Beauchamp said. “Global connectivity has contributed to the savviness of the consumer, plus we live in a what’s hot, what’s not culture. So, even if people have no hands-on experience with a brand or product, it’s not necessarily cause for confusion.”
For her part, however, Huff said Target ought to concentrate on expanding some of its existing brands to new classifications and categories, while pruning or eliminating others. “They have to be careful not to bring in too many labels in their effort to differentiate,” she advised. Pointing out Target is in a “honeymoon period” with consumers, Huff predicted the chain will, in fact, rationalize its brand roster, particularly in home goods, where, she maintained, it is “getting a little out of control.
“They have a number of names on the home side, like Todd Oldham and [yet to arrive] Cynthia Rowley, that don’t mean as much as, say, Mossimo or Cherokee do in apparel,” added Huff, who also questioned the meaningfulness of upcoming apparel additions like Liz Lange and Isaac Mizrahi. “Perhaps it makes more sense to take Mossimo into home goods, or extend Michael Graves into more classifications, rather than adding brands.”
There was accord, among a handful of sources, who projected that long-term, Target will probably get the most wallop from mainstream names such as Eddie Bauer, Woolrich, Calphalon, and Sony.
Beyond the brand arena, Retail Forward’s Skrovan identified some areas in which Target can exploit its growth potential, including:
Opening new stores. In five years Target could be a $65 billion retailer with more than 1,500 units. There is still room for Target to double its store base in the U.S.
Expanding globally. Target is likely to saturate the U.S. within 10 years and start moving abroad by 2007.
Extending its brand marketing panache to more categories and consumer segments.
Driving customer traffic and shopping frequency, in part by siphoning shoppers from traditional food stores.
Indeed, among the chinks in Target’s armor, Huff said, are its “much lower” shopping frequency than Wal-Mart and its lower sales productivity. In 2001, for instance, 12 percent of Target’s shoppers visited the chain weekly, or about one-third the rate of Wal-Mart’s weekly customers, 35 percent. Plus, 53 percent of monthly Target shoppers go to Wal-Mart, while only 27 percent of Wal-Mart’s monthly customers visit Target. As for productivity, Target generated sales of $274 per square foot, on average, last year, versus the $406 per square foot rung up by Wal-Mart.
Paradoxically, it’s the nature of Target’s box that is both attracting shoppers and dampening sales per square foot. “The wide aisles and spacious product presentations are key reasons they get the upscale shopper; it’s not the pull of a Stephen Sprouse or a Todd Oldham,” Huff said, referring, in part, to the unrealized sales potential in the unused space. “People shop at Target because they offer great looks at great prices, in a pleasant environment for a discount store — not for its designer names.”