Analysts look to year 2000 - management consultant forecasts for Dayton Hudson Corp. Target Stores - Staying on Target

Discount Store News, April 20, 1992 by Richard Halverson, Jill Lettich

When the 21st Century dawns, Target, as the fashion leader in discounting, will look even more different from the other two national chains, Wal-Mart and Kmart, than it does today.

Yes, Target will be a national chain by the year 2000, even though becoming one ranks last on its list of expansion priorities.

To support continued growth in the face of ever stiffening competition from Wal-Mart and Kmart, Target will diversify further into speciality retailing, as it did with its Everyday Hero, an apparel only store that the chain began testing last month.

And the Greatland concept, expected to become a major success during the '90s, will set the tone for the Target store of the future, even though only metropolitan markets such as Chicago and Detroit, are right for the concept.

In broad strokes, that s how analysts and consultants view Target by the end of the decade, even though their crystal balls tend to cloud over when it comes to specifics.

Like every other retailer, "Target will look quite different by the end of the decade," said Norm McMillan, a partner in the Chicago consulting firm of McMillan/Doolittle and ex-vice president of promotion and planning for Target in the early '70s. "But I don't know what it will look like," he said.

"It ought to be different from Kmart," McMillan said, because its cost structure is "a little higher" than Kmart, even though it steadily is coming down.

The expense ratio for Target is an estimated 20%, compared to about 19% for the Kmart discount stores (excluding specialty operations) and 16% for WalMart stores (excluding Sam's Club operations).

"I predict Everyday Hero will be a big win," McMillan said, and more specialty concepts will follow. "Dayton Hudson [Target parent] is a very durable outfit," McMillan said. "It has tried many things and gotten out fast if they fail."

DH is "very aware," McMillan said. "It doesn't lag much."

Target will operate a fleet of stores big and small (ranging from 25,000 sq. ft. for Everyday Hero to 135,000 sq. ft. for the largest Greatland store), McMillan predicted.

"Greatland will be the keystone of Target's urban strategy," McMillan said. A Greatland unit "needs lots of people around," he said.

Target faces an "enormous challenge" in the '90s, said Steve Gunby, vice president for retail practice for the Boston Consulting Group.

"Target is committed to growth," Gunby said, just as is Kmart and Wal-Mart.

The Big Three can continue to grow over the next five years by continuing to beat up on smaller players, Gunby said. After that, they either must grow at the expense of each other in head-to-head confrontations or figure out a way to expand the discounting industry faster by venturing into new merchandise areas," Gunby said.

As discount department stores get larger, the pressure to increase sales per square foot intensifies, Gunby said.

Discounters will "close thousands of discount stores over the next 10 years," Gunby predicted, "unless they can expand into adjoining categories of goods."

Gunby's screen goes blank, however, as to what categories of merchandise Target could expand into.

What it won't get into is fresh food. "We're not food merchandisers," spokesman George Hite said.

And that rules out a warehouse club diversification that is becoming a key factor behind Wal-mart's growth.

"Target is too much of a fashion merchant to be attracted to warehouse clubs," said Sid Doolittle, the other partner in McMillan/Doolittle.

As discounting's fashion leader, Target is making a wise move to stay away from the supermarket business, Doolittle said. Wal-Mart, with its supercenters, and Kmart, with its Super Kmarts, are running into problems, Doolittle said.

The chain would do itself a disservice to emulate Kmart or Wal-Mart in store presentation, Doolittle said.

"Target has to prove to its upper spectrum customers through store ambience and presentation that its higher prices are worth it," Doolittle said. "It would be a mistake to cut costs to match Kmart and Wal-Mart."

Target will continue to "distinguish itself as a a fashion leader that tells customers with authority what fashion is," predicted Walter Loeb, head of Loeb Associates, a New York retail consulting firm.

"An image of quality is very important to Target," Loeb said. "It has built a reputation for excellent merchandising and service."

Greatland represents an opportunity for Target to make itself a "destination store," Loeb said.

The Greatland superstore, which Target unveiled in 1990, looms large in the chain's expansion plans. In 1992, Greatland units will account for 11 of the 47 new openings and an even higher percentage next year.

In Chicago, Target's next expansion market, all of the 15 to 20 stores it will open next year will be Greatland stores, spokesman Hite said.

Expansion into contiguous markets, such as Chicago, is second priority for Target, Hite said.

First priority continues to be to backfill existing markets and to keep existing stores fresh through constant remodeling.

Target will remodel anywhere from 15 to 35 stores this year, Hite said, helping to keep average store age to four years.