PHILADELPHIA — Expanded food assortments at Target stores have lifted shopper frequency “as never before,” Doug Scovanner, executive vice president and chief financial officer, told an investors conference here last week.
In remodeled stores with the new, expanded P-fresh food departments, sales and traffic are up an average of 6% 12 months after the remodelings, he said, which translates into 1,000 extra trips per store per week, or gains of $4.5 million at minimum per year.
Minneapolis-based Target said it expects to spend about $1 billion to remodel approximately 340 stores this year, which could boost comparable-store sales by 1%, Scovanner said in his presentation.
At stores with the expanded food sections, gross margins are running at a rate of 18% of sales, he noted, while EBITDA margins increase by 7% the first year, rising about 1.5% a year in the second and third years to 10%.
According to Scovanner, remodeling a store that's between 5 and 8 years old that has never been remodeled might cost $3 million, with 60% of the cost going to merchandising innovations like P-Fresh.
In other comments during the conference, Target said it plans to test a smaller format for dense urban areas within the next few years, as well as look for international expansion opportunities in Canada, Mexico or Latin America.
Besides the 340 remodels, Gregg Steinhafel, chairman, president and chief executive officer, said Target anticipates that new-store construction will encompass a net gain of 10 stores this year, with the possibility of an increased growth rate in 2011 and beyond, “depending on a number of factors, including the economic and real estate environment as well as internal operational performance.”