The past year has been quite productive for Gregg Steinhafel, Target Corp.'s chairman, president and chief executive officer. Target began an aggressive remodeling program in 2010, announced its first foray outside the United States with the acquisition of as many as 220 Zellers store locations in Canada, and enhanced its “REDcard Rewards” program by offering customers a 5% discount almost every time they use their Target debit and credit cards at a store.
The company also made its first-ever public sustainability commitments, and pledged the largest single charitable donation in Target's history — $500 million to support education by the end of 2015.
For competitors in food retailing, the expansion of Target's PFresh remodeling program is the most notable change. In addition to updated merchandising throughout each store, these remodels add an expanded grocery assortment featuring a selection of fresh produce, as well as meat, baked goods and dairy items. The company first tested the PFresh format at two Minnesota locations in 2008, and quietly remodeled other stores in select markets the following year. In 2010, the program really got going, and according to Steinhafel, it's been a big success so far.
“Our PFresh remodel program is on track and driving meaningful increases in traffic and sales,” Steinhafel said during a recent analysts' call to announce first-quarter results. “We now have 550 general merchandise locations incorporating our expanded food layout, and we expect to remodel approximately 300 more locations by the end of October.”
The remodels “completely transform the look and feel of the store,” he added, arguing that the new look offers shoppers a more compelling and exciting environment as well a more relevant assortment.
“Guests continue to tell us how much they love what we've done to their Target in these remodels, and they show us by increasing their trips to remodeled stores, causing traffic to increase an average of about 6% in the first year after the remodel is completed,” Steinhafel said.
Shareholders must be pleased. Despite the sluggish economic recovery, Target's net earnings for fiscal 2010 were up 17.3% to $2.9 billion. Diluted earnings per share were up 21.4% to $4, and the company's quarterly dividend rose 47% to reach 25 cents per share.
But, challenges remain. Target enjoyed a 10% increase in first-quarter earnings per share, on top of a 30% increase last year. But, this impressive performance “was the result of unusually strong profitability in our credit card segment, which offset the impact in the retail segment of softer-than-expected sales,” Steinhafel said during the call.
Comparable-store sales grew 2% during the first quarter, driven by the remodel program as well as increased incremental sales boosted by REDcard Rewards.
“Outside of sales and traffic driven by these initiatives, guests were cautious in their behavior as they faced continued economic headwinds, including near record high prices at the gas pump,” Steinhafel said. “As a result, food and commodity categories performed well, while we experienced less consistent patterns, including some sales declines, in the rest of the store.”
Fortunately for Target, the new 5% REDcard rewards discount could continue to help the company shore up loyalty and boost incremental sales among its core shoppers. And, recent consumer surveys from the consulting firm Satov have indicated that Canadian shoppers are eager to see what the Minneapolis-based retailer brings to the table when they begin opening the remodeled Zellers locations in 2013.
Fifty-seven percent of frequent Walmart Canada shoppers said they would visit the stores less once Target moves in, according to an analysis published in the Wall Street Journal. Similarly, 44% of frequent Sears Canada shoppers and 16% of Canadian Costco shoppers said the same. Mark Satov, head of the consultancy, told the Wall Street Journal that shoppers may be looking to fill certain gaps with Target.
