Discounter fuels corp. growth

MINNEAPOLIS — Racing along on a fast track — and luring upscale consumers who years before would have sniffed at the very idea of shopping at a discounter — Target Stores has become the engine that drives virtually all of the growth at parent Target Corp., now accounting for 86 percent of the company's profits and 82 percent of its sales.

Over the past five years, the core Target Stores division has grown its pre-tax profits at a heady pace of 97.8 percent, to $2.5 billion from $1.3 billion in 1997. Sales during the same time-frame increased by 60.5 percent, to $32.6 billion from $20.3 billion last year, as the discounter added more than $12 billion to its top line.

That's $12 billion in added sales in just five years. Putting it into perspective, $12 billion is almost twice the total sales volume generated by all of the Top 15 home textiles suppliers in 2001. Last year alone, Target Stores increased its sales by $3.3 billion — that's an amount roughly equivalent to the combined sales last year of the home fashions industry's two largest suppliers, WestPoint Stevens and Springs.

Underlining Target's increasing importance to the company, Target pre-tax profits have grown to 86 percent of the total company's profits, up from 71 percent in 1979.

Muddling along in Target's dust are its two siblings, Mervyn's and Marshall Fields. Mervyn's contribution to the parent's profitability has declined to 9.6 percent from 15.5 percent. Far worse is the performance of the department store division, where Marshall Field's now contributes 4.5 percent of the parent's profits, down from 13.3 percent in 1997. While Target pre-tax profits have jumped up by 97.8 percent over the past five years, Mervyn's profits are stuck in neutral, edging up just 2.1 percent, to $286.0 million from $280.0 million in 1997.

But don't write off Mervyn's just yet. While its sales and same-store sales have both declined over the past five years, it's still handsomely profitable, and last year threw off a rich cash flow of $286.0 million.

As chairman and ceo Bob Ulrich pointed out to Home Textiles Today a few years ago following an annual shareholders' meeting, Target has never seriously considered spinning off the Mervyn's unit, despite almost constant speculation that it will do so. In fact, it can't, said Ulrich. Its cash flow is too important and helps to open all those more profitable Target stores.

But a bigger question mark hangs like the sword of Damocles over Marshall Field's, the weak sister of the company, which occupies the weakest channel of retail distribution — the department stores, who finally do look like the dinosaurs standing at the edge of the tar pit.

Over the past five years, Marshall Field's sales have dipped by 4.7 percent, to $2.8 billion from $3.0 billion. But that just begins to tell the story — over the same period, pre-tax profits have skidded down by 45 percent, to $133.0 million from $240.0 million in 1997. Marshall Field's now generates only 4.5 percent of the parent's profits, down about two-thirds from the 13.3 percent it brought in during 1997.

But more than making up for the two weaker divisions, Target Stores continues to pour it on, boosting its sales and earnings, improving virtually all of its key performance metrics, and in general acting like a retail juggernaut as it rolls across the country, opening new markets.