WWD.com/globe-news/financial/target-unveils-initiatives-to-deal-with-economic-slowdown-1842900/
government-trade
government-trade

Target Unveils Initiatives to Deal With Economic Slowdown

Target Corp. executives unveiled initiatives on Thursday to maximize business amid curtailed consumer spending.

View Slideshow

Target Corp. executives unveiled initiatives on Thursday to maximize business amid curtailed consumer spending and leave the retailer well-positioned to recapture market share when the economy improves.

The ideas ranged from a fabric sourcing program to changes to advertising circulars and a grocery concept — all intended to drive traffic, lower expenses or communicate value to consumers.

Despite the environment, Target is still thinking about growth, but don’t expect the retailer to enter the international arena.

Gregg W. Steinhafel, president and chief executive officer, told analysts meeting at company headquarters in Minneapolis that Target has the capacity to almost double in size domestically — it now operates 1,613 stores in 47 states.

In the U.S., “the brand is well understood and…returns are superior,” he said. “We’re focused on getting our retail and credit businesses back on track. Our strategy is not the low-cost model. Our brand wouldn’t translate as well as Wal-Mart in emerging countries. If we were to go international when we reach point of saturation, we would look to our borders first, Canada and Mexico, before taking the risk of going to Europe and Asia.”

Steinhafel and Douglas A. Scovanner, executive vice president and chief financial officer, were candid about the economic challenges the company faces. One retail analyst at the conference even praised Target’s newfound transparency.

“We all appreciate seeing more of the organization than we typically have at these meetings,” the analyst said.

The retailer restated some previous estimates. In terms of Target’s credit card portfolio, which now has $8.6 billion of receivables, Scovanner said if the risks continue to grow more severe, “we would peel back our capital investment in 2009 to what we have in the pipeline now.” In August, Scovanner said the company had $4 billion invested in capital expenditures. “Today, maybe $2.5 billion to $3 billion is committed. There would be $1 billion to $1.5 billion of capital-ex that we would certainly not elect to invest.”

Investing in new stores will depend on the macroeconomic environment.

“We take a careful look at the projected sales and cash flow of each location and determine how much we can afford to invest in the land,” Scovanner said. “Even if we have a terrific recovery in the back half of 2009, it would take us a few years to get back to where we were in 2006 and 2007 in terms of [new] store counts.”

The company’s “‘Expect More, Pay Less’ strategy has guided us through boom times and down times,” said Kathryn A. Tesija, executive vice president of merchandising. “In this economic climate, we’re emphasizing the ‘Pay Less’ part. We’re making sure our prices match Wal-Mart’s prices in all local markets. We’ve increased the number of endcaps that showcase low-priced merchandise and reinforced the message with in-store signage. We made changes to weekly circular. There are fewer products and larger images with low price headlines.”

Citing the troubled economy, Michael R. Francis, executive vice president of marketing, said customers “are more focused on price. There is a perception that our competition is lower-priced. We want to help erase those misconceptions. Simply having the lowest prices on household commodities is not a defensible position for us. Having products and an environment where [shoppers] can expect more and pay less puts us in a position to gain market share.”

Francis said the company has rebalanced its media mix and advertising budgets so that three-quarters of the spend is devoted to its key value position.

“We’re being more explicit in terms of ‘Pay Less,’” he said. “Every vehicle we create will contain a bolder statement about Target’s value.”

The company features fashions by designers such as Jonathan Saunders and Anya Hindmarch, and “we’re telling guests that they don’t have to sacrifice style or design in this economy,” Francis said. “We believe guests are no longer shopping their favorite upstairs businesses. To these [affluent] guests, we’re saying, ‘We have the things you’d expect to find at a Macy’s and a Barneys New York.’ Newness is what’s selling in our stores right now. Punctuating our stores with up-and-coming designers is effective.”

Designers will be supported in print ads and circular campaigns with a big difference — the designer’s own voice will be more apparent, he said.

“Beauty is hugely important to our core guest and destination guest,” Francis said. “We continue to look for emerging talent in beauty” and added three experts: Jemma Kidd, Petra Strand and Napoleon Perdis. “We allow our guests to test and sample products.” A TV commercial featured the new designers with the tag line, “Be bold. Be beautiful. For less.”

Target recently rolled out a value campaign that spotlights traffic-driving essential items with a Dolly Parton vocal in the background. “Our rebalanced approach will be the dominant theme in 2009,” Francis said. “We’re seeking new ways to drive traffic and emphasize value. We’re being more explicit. We’re still out there taking creative risks and taking opportunities.”

An example of risk-taking, Francis said, was Target’s bodega concept, which bowed in New York last month and featured products from 22 Target designers. “It was a classic Target pop-up event,” he said. “It generated $10 million worth of free advertising [media coverage]. Target’s incredible values was the main headline.”

The company has a goal of putting the entire store online and is integrating mobile commerce into its retail plan. A mobile version of its weekly ad and store locator, along with gift finder, is available for the iPhone. To drive traffic to the Web site, an online free shipping offer has increased to 50,000 items from 25,000.

Target also unveiled a grocery concept now in the second week of testing. Growing grocery is a key initiative for the retailer, which “doesn’t have enough critical mass in food to offset the impact of the consumer’s lack of discretionary income,” Scovanner said. “About 40 percent of our business is in apparel and home. We’re committed to expanding our food footprint.”

“It could be the bridge between smaller stores and Super Targets,” Steinhafel said, adding that it will be incorporated into two new Target stores opening in March. Target is keen on the concept because it believes that customers who shop for food make more store visits and spend 8 percent more at each visit. That’s four times more than non-food consumers.

Target stock closed Thursday at $33.93, up 52 cents in New York Stock Exchange trading.

View Slideshow