Purveyor of all that is cheap, yet chic, Target Corp. is the nation's #2 discount chain (behind Wal-Mart). The fashion-forward discounter operates about 1,785 Target and SuperTarget stores across North America, as well as an online business at Target.com. Target and its larger grocery-carrying incarnation, SuperTarget, have carved out a niche by offering more upscale, trend-driven merchandise than rivals Wal-Mart and Kmart. Target also issues its proprietary Target credit card, good only at Target. After a reversal in fortune that coincided with the onset of the deep recession, Target is growing its grocery business, aggressively remodeling and expanding stores, and recently entered the Canadian market.
The retailer operates three reportable segments: US Retail; US Credit Card; and Canadian. The US Retail segment includes Target general merchandise stores and the larger grocery-carrying SuperTarget stores. Target also operates an online business. The US Credit Card unit offers the company's RED-branded proprietary cards, the Target Visa and Target Card. The newly-formed Canadian Retail segment was created as a result of Target's purchase of leasehold interests in Canada from Zellers Inc. in 2011. An interesting, little-known sideline for Target is its business-to-business subsidiary, Target Commercial Interiors (TCI). TCI operates about a half-dozen showrooms in Illinois, Minnesota, and Wisconsin that provide products and services for office environments. The interior design company, whose clients include some of America's largest companies, is attempting to expand its business by reaching out to small and midsized companies.
While all of Target's sales are currently generated within the US, the nation's #2 discounter is poised to extend its retail footprint north of the US-Canada border in 2013 with about 125 store openings.
Sales and Marketing
Target Corp. spent $1.36 billion on advertising in fiscal 2012 (ends January), up from nearly $1.3 billion and nearly $1.2 billion in fiscal 2011 and 2010, respectively. Newspaper circulars, Internet ads, and media broadcast made up the majority of the company's advertising costs.
Target's retail sales grew by 4.1% in fiscal 2012 (ends January) vs. the prior year, after increasing by 3.7% in the previous annual comparison. The retailer's second year of relatively-strong retail sales growth followed a rough patch during the recession when Target, historically a stellar performer in the retail arena, stumbled. Same-store sales growth (generally considered the best indicator of a retailer's health) have picked up steam, increasing by 3% in fiscal 2012, after posting about a 2% increase in fiscal 2011 and a decrease of 2.5% in fiscal 2010. Target's credit card segment was more profitable in 2012 primarily due to declining bad debt expense. While Target's entry into Canada is a long-term growth opportunity, in the short term start-up costs are a drain on profitability. Indeed, Target's capital expenditures more than doubled in fiscal 2012 vs. 2011, with new stores in Canada and store remodels and expansions in the US requiring sizable investments. To help offset the cost of its foray into Canada, Target has announced plans to sell Zellers' prescription customer files and then build its pharmacy business from scratch when the Zellers stores reopen as Target outlets. While the Zellers pharmacy business has been valued at up to $500 million, Target isn't expected to be able to raise that much in the sale.
Target was attracted to Canada's relatively-healthy retail market, which presents ample opportunity for growth. That's important for the chain which has faced falling and stagnant sales of apparel, electronics, and home furnishings and decor (historically strong suits for Target) since fiscal 2008. But sales of food and pet supplies and household essentials have risen as cash-strapped consumers stick to the basics. To capitalize on the new frugality, Target has taken a page from archrival Wal-Mart's playbook and has opened new formats that devote more space to food, especially its house brands Archer Farms and Market Pantry, and other household basics. Nearly 900 Target stores (up from 462 last year) now feature expanded food assortments, as do the company's 250 SuperTarget stores. In fiscal 2013 Target plans to remodel an additional 230 general merchandise Target stores to house expanded food assortments, including fresh produce. To fanfare, of sorts, Target debuted a 200-piece collection of apparel, household goods, and other items under the Missoni brand name in late 2011. The retailer extended its cheap-chic appeal to the kitchen in 2010 when it introduced an exclusive line of cookware from Food Network chef Giada De Laurentiis. Besides promoting her line, De Laurentiis will also formulate cooking tips that tie together with Target's private-label brands, such as Archer Farms. Also that year Target acquired the brand and related intellectual property assets of the defunct Smith & Hawken, which made upscale patio furniture and gardening products. Other designers with exclusive lines at Target include Amy Coe (children's bedding and accessories), Liz Lange (maternity), Mossimo (junior fashions), and the architect Michael Graves (housewares).
Mergers and Acquisitions
To grow its cooking and kitchenware business, Target in 2013 acquired CHEFS Catalog and the assets of Cooking.com in two separate transactions. CHEFS Catalog sells cookware, bakeware, cutlery, and kitchen tools from such brands as All-Clad, Cuisinart, KitchenAid, and others. Cooking.com operates branded online stores including the Food Network Store, Calphalon Store, and Rachel Ray Store.