Wealth, not health, motivates Target to extinguish cigarettes - Target Stores Inc. halts tobacco sales due to costs, associated problems

Discount Store News, Sept 16, 1996 by Richard Halverson

MINNEAPOLIS -- Target cast its recent decision to snuff out smokes as purely a business move, rather than an ethical consideration.

Low profit margins, high theft and expensive-to-implement ordinances to control sales to minors make cigarette retailing less than lucrative.

Indeed, when cigarette makers cut prices in '95, the deflationary move had a major impact on the poor same store sales results of Sam's Club, since cigarette sales to small businesses are a major part of club revenues.

Target was one of the first chains to make its stores smoke-free, banning smoking in its restaurants.

In addition, Target is making a major push into pharmacies, opening them in most, if not all, of its new stores and adding pharmacies, for example, in all 16 of its Phoenix stores. And the moral dilemma of promoting health through pharmacies while selling cigarettes--an acknowledged health hazard--loomed large.

Nonetheless, the decision was a business one, not a moral one, said Gail Dorn, spokes-woman for Target's parent company, Dayton Hudson. Cigarettes accounted for about 0.5% of Target's 1995 sales of $15.8 billion, or $79 million.

Target started to cut back on cigarette sales at about one-fourth of its stores two years ago, Dorn told DSN, and it will cease chainwide when current stocks sell though, probably by the end of the month.

DSN CHARTS: August sales

                          Total Sales                Same
                            (in mil.)                Store
Chain                     1996     1995     % chg.   % chg.

Wal-Mart(1)               $7,843   $7,042    11.4%     3.9%
Sears(2)                   2,799    2,614      7.1      4.4
Kmart(3)                   2,462    2,525    (2.5)      1.0
Target(4)                     NA       NA     15.7      6.0
PriceCostco                1,530    1,380     11.0      6.0
JCPenney                   1,332    1,223      9.0      7.0
Best Buy                     603      527     14.0    (3.0)
TJX Cos.(5)                  545      292     87.0       NA
Kohl's                       188      158     18.6      8.9
ShopKo                       183      152     20.1     18.9
Consolidated Stores(6)       170       98     73.5      3.0
BJ's Wholesale Club           NA       NA     17.4      4.7
Family Dollar                156      129     20.3     13.0
Dollar General               155      127     21.8      8.4
Ames                         153      151      1.5    (0.8)
Hills Stores                 146      146      0.5    (0.1)
Ross Stores                  130      111     17.0     11.0
Michaels Stores               87       82      5.0    (1.0)
Bed Bath & Beyond             85       63     34.5      5.7
Value City                    84       65     29.9      1.6
Best Products                 80       99   (19.3)   (21.4)
Goody's Family Clothing       70       62     11.9      6.5
Rose's Stores                 62       65    (3.6)    (2.3)
Mac Frugal's Bargains         50       44     12.3      8.8
Filene's Basement             40       42    (5.0)    (1.0)
Dress Barn                    37       36      4.0      2.0
Fred's                        30       30      0.7    (3.2)
Men's Wearhouse               30       26     16.1      0.8
Family Bargain                23       17     37.0      6.4
Strouds                       16       14     15.6    (4.2)
Jan Bell Marketing            13       13      0.0    (1.4)
Old America Stores            10       10      0.0      1.7
S & K Famous Brands            9        8     10.0      6.0

Source: Company reports

(): Decline

NA: Not available

(1) Wal-Mart, total corporate sales, including Sam's Club

(2) Sears, total corporate sales, including Western Auto

(3) Kmart, total corporate sales, including Builders Square

(4) JCPenney, U.S. department stores only

(5) TJX Cos., includes Marshalls (acquired from Melville)

(6) Consolidated Stores, includes Kay-Bee Toys (acquired from
Melville)