A fresh foundation in the Northeast makes Target a national powerhouse - The Power Retailers: Target - Cover Story

Discount Store News, April 1, 1996 by Richard Halverson

It is the smallest player of the Big Three, the most limited in geographical reach and the most resolutely upscale in its merchandising. Target now stands on the threshold of transforming itself from a Midwestern regional powerhouse into the third national discount department store chain-albeit long after Big Three colleagues Wal-Mart and Kmart, both of which were founded in the same year as Target.

While Target's deliberate, methodical expansion strategy has allowed Wal-Mart to beat it into the lucrative Northeast, its delayed timing is proving to be a stroke of genius. As it heads into the region with a major commitment of 28 stores this year alone, Target strides onto a field where all the regional players are in disarray.

And as it wends a course into more new markets across the country Target is buoyed along its unique ability to prosper in the face of competition, thanks in large part to outstanding consumer friendliness and a long-standing commitment to technology.

The road ahead, however, is marked with a couple of caution signs. The first is whether its nascent SuperTarget concept is too little effort applied too late not to mention whether Target strategically even belongs in the grocery business. The second consists of reaching a decision about what to do with its Greatland concept, which was to be its superstore of the future.

Moreover, as the engine that drives Dayton Hudson, Target must pull the weight of its troubled sister chain, Mervyn's and the parent company's lackluster Department Store Division.

Unleashed in the Northeast

Target began its much anticipated march northward from Georgia and the Carolinas early last month by first two of what will be 24 stores this year in the metro Washington and Baltimore markets.

As it turns out, its timing couldn't be better. Kmart, which long owned the Northeast, is reeling and will close 40 more stores this year, several of them in the region. Regional discounters, already pushed to the wall by Wal-Mart, are retrenching-and the arrival of new Target competition threatens to make their positions even more precarious.

Wal-Mart, which already operates about 85 discount stores, supercenters and Sam's Clubs in heavily stored New England. Target has managed to co-exist profitably with Wal-Mart, thanks largely to the fact that Wal-Mart's focus on the value-driven customer leaves Target to mine the fashion-oriented consumer segment. Target's core customer also has a slightly higher median family income, about $43,000 compared to the median family income of $35,000 for Wal-Mart's core customer.

"Target won't be affected by the delay because its customers tend to be younger, more urban and have higher incomes than the customers of either Wal-Mart or Kmart," said Carl Stiedtmann, chief economist for the Management Horizons division of Price Waterhouse. Target's more deliberate growth strategy, Stiedtmann noted, is prompted by its desire to make sure it is well-financed and properly sited."

Target, now officially "Unleashed in the East," opened its first eastern units March 10 behind the Potomac Mills Mall in Woodbridge, Va., (a 126,000-sq.-ft. Greatland store) and in Fredricksburg, Va., 35 miles south of Washington (a conventional 115,000-sq.-ft. Target store). By yearend, it will open l3 stores in Maryland, 10 more in Virginia and four (eventually six) stores in upstate New York.

Over the next two years, Target plans to build 50 stores in the Washington and Baltimore metro markets and then march swiftly up the East Coast into the Philadelphia and New Jersey markets. By 1998, real estate brokers expect Target to be operating in the wide-open Boston market, dominated by old Kmart, Bradlees and Caldor stores.

In Philadelphia, which Target views as a logical extension of the Washington/Baltimore market, real estate representatives are now scouting potential sites. Those include perhaps l0 of Clover's larger stores. In New Jersey, Target is checking out real estate for as many as eight units.

To oversee the Northeastern expansion, Target last fall transferred its Omaha, Neb., regional office to Richmond, Va. The company also began building an $85 million, 1.6 million-sq.-ft. distribution center in nearby Stuarts Draft, Va., which is expected to start shipping next January.

The Northeast is not the only area of activity, of course. Target's wave of March openings included new discount stores in Arizona, Florida two stores), Georgia, Illinois, Kentucky, Michigan, Missouri, Ohio (three stores), Oregon, Tennessee, Texas (two stores) and Washington to fill in those markets.

It also included the opening of the company's second supercenter in Omaha, Neb., the third Super-Target in the chain.

SuperTarget tests the waters

Target's restrained approach to the combo store concept contrasts against the explosive growth of the $26.3 billion supercenter industry, which is growing at a rate of more than 50% per year. The deliberation is also entirely in character.

Supertarget remains a test concept for the company, which will limit construction to six this year and about 22, over the next two years. Then it will sit back and decide whether it belongs in the grocery business.