Home products category goes 'upstairs.' - Dayton Hudson Corp. Target Stores; Growth Retailer of the '90s

Discount Store News, Sept 17, 1990 by Pete Hisey

Home Products Category Goes `Upstairs'

The home products category is, perhaps, Target's raison d'etre.

The company has built its reputation as an upscale discounter through its high-fashion approach to bed and bath, its early use of coordination between home fashions departments, slightly higher price points for higher-than-usual quality goods and exclusive or semiexclusive products or designs. Its customers expect a higher level of fashion.

The most obvious area is bed and bath, where the company was an early entry into the coordination market. However, the first tests were less than successful, and it wasn't until Country Estates in 1989 that coordinated selling took off at Target.

The program, after the shakedown year, has been expanded and revamped. All three original patterns have been replaced with four new ones, including French Countryside, the unquestioned success. However, high fashion is not limited to Target's proprietary lines. In bath, for instance, Target now offers the latest fashion colors; until recently, discounters normally had to wait at least one season to get the latest hues.

As vp and dmm Robert Guelich put it, "the heat is on the department stores, now. The mills are making the [latest] colors available much more quickly."

Target now includes towel walls, deep endcaps, vignettes and other department store touches in its domestics departments, and has made a commitment to staying just one step ahead of its consumer, pushing the fashion edge.

If domestics is leading edge, however, consumer electronics seems to be lagging behind most of the discount industry. And, according to Guelich, that's at least partly by design. According to Guelich, hot technologies like fax machines, PCs and camcorders have been tested in the past (and that camcorders are scheduled for another go-around this fall), and the price points are not in Target's range.

That flies in the face of trends at other discounters (like Wal-Mart, which has made fax machines a major distinction and has aggressively tested a raft of personal computers). While Target's storewide strategy has been to offer leading edge products at slightly higher-than-average price points, Guelich noted that none of these high-tech products have met productivity standards. So the future of home office electronics and high-end products such as camcorders (which, Guelich noted, have become much less profitable of late) appears to be bleak.

"We've done well with traditional home office products like telephones and typewriters," Guelich said. "But when you get to products like fax, word processors, shredders and so on, we've tested them and there's been no response.

"As for personal computers, we're out of them now. We're still testing them, but that's about it."

Instead, the company has made a commitment to software. Target was first into full prerecorded video selections, and now looks at that business as a core business. It now owns its own "distributor," cutting out the middleman (but increasing the attention it must pay to churning sku's to maximize dollars).

"We got in early, and prerecorded video is a significant business and growing," he said. "However, it's a very trendy business; you have to have the titles the day they're released. The same goes with audio.

"In video, the declining price points, now $3.99 to $14.99 or so, have keyed tremendous unit growth."

According to Guelich, growth areas, in addition to prerecorded audio and video, are TVs, VCRs, portable CD players and video games and hardware. Photo, also, has done well over the past year.

Target recently installed a modified World of Nintendo format in its stores and, according to Guelich, the results so far have been good. "World of Nintendo is more than a test," he said. "It's doing very well and we're happy with it. It's 100% hardware and games; we don't stock the T-shirts and so on. Game Boy has done very well."

However, Guelich believes the category might be reaching maturity. "It's slowing down perceptibly," he said. "It's a tough market and the customer is getting more discerning. They're looking for the best games. If three kids buy a game and hate it, it's dead. The word will be all over the schoolyards in a couple of days."

As in domestics, Target's furniture strategy centers around leading-edge fashion and (where possible) limited exclusivity. One example: the Options series of RTA furniture from Cosco. In early 1988, Target and Cosco sat down together to develop the new line. According to Scott Lancashire, vp of sales and marketing, Cosco, Target wanted a European-styled selection that would both stand out from the selections offered by most discounters and compete with upscale mass specialists like IKEA and HoM.

As part of the program, Cosco agreed to give Target limited exclusivity, from June of 1988 when production began to the end of the year. For six months, Target had the program to itself, and sales, Lancashire said, were terrific. By the time Options made its way to other discounters, Target had effectively differentiated itself from head-to-head competitors in this key category.