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 more than 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.
While all of Target's sales are currently generated within the US, the nation's #2 discounter extended its retail footprint north of the US-Canada border in 2013 with about 125 store openings, including its first locations in Quebec and Nova Scotia. The chain aims to have 200 stores in Canada by 2015.
The retailer operates three reportable segments: US Retail; US Credit Card; and Canadian Retail. 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.
Sales and Marketing
Target Corp. spent $1.4 billion on advertising in fiscal 2013 (ended January), compared with $1.36 billion on advertising in fiscal 2012. Newspaper circulars, Internet ads, and media broadcast made up the majority of the company's advertising costs.
Target's retail sales grew by 5% in fiscal 2013 (ended January) versus the prior year, after increasing by about 4% in the previous annual comparison. The retailer's third consecutive 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 nearly 3% in fiscal 2013, after posting about a 2% increase in fiscal 2011 and a decrease of 2.5% in fiscal 2010. Target's credit card segment was less profitable in 2013. While Target's entry into Canada is a long-term growth opportunity, in the short term start-up costs are a drain on profitability. Over the past two years start-up costs have totaled about $346 million. 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. More than 1,100 Target stores now feature expanded food assortments, as do the company's 250 SuperTarget stores. In fiscal 2013 Target remodeled an additional 230 general merchandise Target stores to house expanded food assortments, including fresh produce. In 2012 Target launched a small-format CityTarget store in urban areas, including Seattle, Chicago, and Los Angeles, that sell food and general merchandise on a smaller scale than traditional supermarkets.
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).
Another key to Target's strategy is its proprietary credit and debit cards (REDcards, collectively), which encourage customer loyalty and drive sales. Use of the cards for store purchases more than doubled from 2010 (about 6%) to 2012 (more than 13%). In late 2013, however, a data breach at the company resulted in the personal information of more than 70 million customers -- including some 40 million credit and debit card accounts -- being compromised. It has seen meaningfully weaker sales since the breach became public and cashiers have temporarily stopped asking shoppers if they would like to participate in the REDcard program. Target has announced plans to invest some $5 million in new security measures and is offering guests a free year of credit monitoring and identity theft protection.
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.
State Strret Corporation owns about 10% of Target's shares.