Target stands tall among big three - Target may outrank Wal-Mart and Kmart - Editorial

Discount Store News, April 18, 1994 by Tony Lisanti

The "Big Three" is a phrase often used, not only in Discount Store News but throughout the industry, to refer to the three largest discount retailers--Wal-Mart, Kmart and Target--when they are ranked according to sales volume. However, if you analyze the nation's top three discount retailers according to other key measurements used by analysts and executives to monitor retail performance, Target often ranks second to Wal-Mart and ahead of Kmart.

This is true in most areas. Consider the following figures (issued last month) for discount stores from Montgomery Securities:

* Average sales per square foot: Wal-Mart, $287; Target, $209; Kmart, $140.

* Comp store sales: Wal-Mart, 8.3%; Target, 5.5%; Kmart, 3%.

* Three year annualized unit growth: Wal-Mart, 8.7%; Target, 8.2%; Kmart, 1%.

* Three year annualized sales growth: Wal-Mart, 23.8%; Target, 11.4%; Kmart, 2.1%.

* Average store volume: Wal-Mart, $24.9 million; Target, $21.9 million; Kmart, $11.3 million.

* Gross margin: Wal-Mart, 23.5%; Target, 24.3%; Kmart, 24.6%.

* Expense ratio: Wal-Mart, 16%; Target, 18.9%; Kmart, 19.2%.

* Operating Income per average square foot: Wal-Mart, $21.53; Target, $11.21; Kmart, $7.57.

Many observers believe Target must be doing something right. What underlies that view is that Target has been quietly growing under the Dayton Hudson umbrella and becoming a much more formidable force in discount retailing.

Believe it or not, it's quite possible that Target could surpass Kmart in discount store sales by the year 2000 and become the nation's second largest chain, thereby giving new meaning to the phrase the "Big Three." Target could accomplish this particularly if it makes an acquisition and Kmart continues to struggle.

Regardless of the outcome of this prediction for 2000, the significant point is that Target is well-positioned for growth due to its effective implementation of strategies in several crucial disciplines. And this message was communicated clearly by Bob Ulrich in a recent interview.

The reserved Ulrich, who seldom talks publicly, was candid and confident in his analysis of Target. (See story page 23).

Here are the critical issues facing Target:

Pricing. While Ulrich said Target lowered prices effectively to remain competitive, the discounter must continue to be sensitive to pricing while communicating the low price message to its customers.

Merchandising. With its strong reputation for fashion, Target must reinforce its image for value and trendy products while maintaining the proper balance of brands vs. private label. In addition, Target must improve its micro-marketing as a point of differentation.

People. Ulrich proudly touted Target's "bench strength," and certainly the discounter has attracted a plethora of talent both at corporate headquarters and store level. Furthermore, Target has invested significantly in training and benefits. The trick is to manage turnover and prevent another exodus of top people that occurred a few years ago.

Marketing. Year after year, Target manages to attract top celebrities and produce award-winning promotional and advertising campaigns. This will continue to be a critical area and point of differentiation, particularly as Target enters more new markets.

New formats. The development of the Greatland concept, which was one of the best new general merchandise prototypes in recent years, will continue to be the vehicle for Target to enter new markets. And the development of the Target supercenter will better position the company for its "two front war" through the balance of the decade.