Target Takes Stock, Assesses Direction
May 23, 2005,
Minneapolis — Target executives touched on a variety of topics last week during their annual talk with the press, including the health of the home department, the direction of direct importing and the implications of the Saks Inc. chargebacks case.
Since a number of new lines rolled out with the spring set in early March, Steinhafel described performance judgments as “somewhat premature,” but went on to assess a few of the retailer's captive brands. Isaac Mizrahi has been exceeding expectations, Fieldcrest has been meeting expectations and Woolrich has been “a little bit better” than expected, he said.
Steinhafal declined to disclose what percentage of the home department is handled on a direct import basis, but said the ratio for the overall store is 25 to 30 percent — and there's room to grow that business significantly.
“We still think there is a lot of opportunity to increase our import business,” said Steinhafel. “We are a retailer and we are a manufacturer, too, when it comes to that.”
He added that the gross margin increases Target realizes through its direct imports offset the added expense of the extra staffing in product development and the cost of holding inventory.
Said Doug Scovanner, executive vice president and chief financial officer, “We are adding expense, we are adding huge numbers of high-salary jobs” to expand product development. He said the number of new jobs related to direct importing runs in the thousands — “some directly traceable to direct imports, some not as directly.”
Target operates 58 sourcing offices in 40 countries.
Asked whether the chargebacks suit against Saks Inc. will impact retailers at large, Scovanner said: “There's nothing wrong with chargebacks per se.” He noted that chargebacks have long been part of the buying equation between retailers and vendors. He added that Target works hard “to assure to the highest reasonable degree” that its own chargebacks are fair and accurate.
In terms of the general pace of sales, Scovanner said first quarter transaction levels rose 2 to 3 percent.
On the subject of pricing, Scovanner said that the majority of merchandise is sold at regular price or at clearance prices. Promotional price items featured in Target circulars account for a small portion of sales, he said.
Steinhafel noted that consumer reaction to the Global Bazaar program — which ran for six weeks earlier in the year — has given merchants “the encouragement to probe upward” in pricing.
Although Target is testing how high its top end can go, Chairman and CEO Bob Ulrich noted during the shareholder meeting that Target continues to match Wal-Mart's pricing in local markets on commodities and other like merchandise.
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