• Cecile Corral

Target to Pare Home Department

Maintains Guidance

With home persisting as one of the weakest performing categories at Target stores during a most challenging fourth quarter, the 1,677-unit discount department store is reacting by reducing its shelf space and brand breadth going forward while ramping up better-selling categories of consumables.

During the retailer's fourth quarter earnings call last week, chairman, president and ceo Gregg Steinhafel said Target's merchandising plans for 2009 “reflect our growing commitment to food,” and the chain is thus making “significant investments in support of our perishable food distribution capability” with expanded assortments of dry, dairy and frozen foods as well as the addition of perishable items in new and remodeled general merchandise Target stores.

What this means for home and other discretionary categories is a more concise presence — both in the stores and in advertising.

“For example, in our new and remodeled stores we are allocating more shelf space to non-discretionary categories such as food, household, personal and baby and health and beauty products,” explained Kathryn Tesija, evp, merchandising. “And we're leveraging our marketing vehicles to drive awareness of this merchandise. In our weekly circular we're devoting more space to frequency-driving categories and using themes to drive trips and basket size.”

The effort also calls for brand shrinkage in home, where Target is consolidating multiple sub-brands into a single brand “with quality enhancements and redesigned packaging that calls our product features and benefits,” Tesija said.

Target is also editing the home assortment and reducing sku count “to allow a cleaner presentation to more clearly communicate strength of this brand to our guests.”

Other branding strategies include the re-launch this spring of two house brands “to more clearly communicate their value and the consolidation of more than eight house brands across multiple divisions “to create a stronger presence for Circo — our exclusive brand for kids — across all merchandise categories,” she said. “This consolidation allows us to tell our guests a more complete brand story as they shop throughout the store.”

Standing to benefit is grocery, which is seeing the steady growth of its house brands Archer Farms and Market Pantry, Target's premium and value food brands, respectively. Together, they reached a penetration of 20% at yearend 2008, representing “a significant new milestone.”

“We believe that our commitment to developing and marketing these brands will lead to their continued growth in 2009,” Tesija said.

Pricing is another focal point this year for Target. And by this, the retailer doesn't just mean keeping price points competitive, but alerting shoppers to Target's 1 to 2 percentage point proximity to Wal-Mart's prices on like or identical items within local markets.

“[Shopper] perceptions do not reflect this reality. As a result we are intently focused on improving perception,” Tesija said.

To “boldly and accurately convey our value message,” she said, Target has redesigned its circular to reduce the number of sub-feature items and allow for enlarged images of feature items, “and present bold, straight-forward value headlines.”

In addition, Target has increased the number of its single-price-point end caps to comprise three-fourths of each store's total end caps. And each one has new, larger signage.

“These changes allow us to make a stronger impact with key items and prices,” she said.

While the “pay less” side of its business is top-of-mind, the “expect more” side isn't forgotten, Tesija urged. The retailer is showcasing nine new designer partnerships — one more than last year — in the first half of 2009.

Among them are some for home, including two new eco-friendly lines launching in April during Earth Week, one of them an outdoor living collection.

Profits fell 41.7% in the fourth quarter ended Jan. 31 to $609 million, or 81 cents per share as the company cut prices to drive traffic — and its credit card division recorded a pre-tax loss of $135 million. Sales declined 1.6% to $19.0 billion, while comps dropped 5.9%.

For the year, net income fell 22.3% to $2.2 billion, or $2.86 per share. Sales rose 2.3% to $62.9 billion, with comps off 2.9%.

Target Stores, Inc.

Qtr. 1/31 (millions) 2009 2008 % change
a. Retail sales only. Fourth quarter figure does not include credit card revenue of $537 million, up 0.9%. Total company sales were $19.56 billion, down 1.6%. For the full fiscal year, credit card revenue rose 8.9% to $2.1 billion. Total company sales were $63.4 billion, up 2.5%.
b. New account and loyalty rewards redeemed by customers reduce reported sales. Target's retail segment charges these discounts to its credit card segment. Reimbursements of $41 million and $117 million for the quarter and fiscal year, respectively, were recorded as a reduction to SG&A expenses in the retail segment.
Sales $19,023a $19,340a (1.6)%
Oper. Income (EBIT) 1,157 1,846 (37.3)
Net income $609 1,028 (41.7)
Per share (diluted) 0.81 1.24 (34.7)
Average gross profit 27.3% 28.7%
SG&A expenses 18.3%b 18.1%b
Fiscal Year
Sales $62,884a $61,471a 2.3%
Oper. Income (EBIT) 4,402 5,270 (16.5)
Net income 2,214 2,849 (22.3)
Per share (diluted) 2.86 3.33 (14.2)
Average gross profit 29.8% 30.2%
SG&A expenses 20.4%b 20.4%b

Cecile CorralCecile Corral | Senior Product Editor, Home Textiles Today

Cecile B. Corral has been a product editor with Home Textiles Today since late 2000. She covers the area and accent rug, kitchen textiles, table linens, beach towels, decorative bath and decorative pillow categories, as well as some retail subjects.

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