NEW YORK — As Target Corp. tries to “engineer a rejuvenation of top-line performance,” the addition of P-fresh departments at existing discount stores has the potential to boost comparable-store sales by up to 1% a year, Doug Scovanner, executive vice president and chief financial officer, told investors here last week.
In addition, the 5% Rewards program Target is testing in Kansas City, Mo. — and which it plans to roll out chainwide in the next few months — is expected to add nearly a point of same-store sales in the fourth quarter this year and between one and two points in 2011, he noted.
A one-point lift is equivalent to about $700 million, he pointed out.
Scovanner made his remarks at the Goldman Sachs Global Retailing Conference here.
He said the addition of P-fresh — encompassing a full grocery assortment and related products — enabled Minneapolis-based Target to increase comps by two- to three-tenths of a point in the first quarter and seven-tenths of a point in the second quarter, with expectations of adding a full point in the third quarter and more than a full point in the fourth.
He said Target expects to have 340 P-fresh departments in operation by the end of October, with plans to convert “an even larger number” in 2011, which should drive incremental same-store sales “well above a full point of comp for the year.”
The company is projecting 450 stores with P-fresh by the end of 2011 and expects to add 400-plus stores the following year, Scovanner said.
With a total of nearly 1,500 discount stores, “it wouldn't take too many years at 400 a clip to be done chainwide,” he said. However, growth is dictated to some degree by external factors, such as the availability of refrigerated and frozen cases, he noted.
“Having a weapon [like] P-fresh that is a prototype that carries almost all of the categories with just 60% of the SKU's that you'd find in a SuperTarget ends up being a superior investment proposition in trade areas where we otherwise can't satisfy the demand for a SuperTarget because we can't find the land,” Scovanner added.
Target is seeking opportunities for smaller stores, Scovanner said, with plans to have a couple in operations within 24 months “and lots more to follow.”
For Target, smaller stores will not feature limited assortments “in the way that label is used in the food business — it's limited only in comparison to the enormous numbers of SKU's in our discount stores, so it's limited to us but doesn't feel limited to the guests.”
Target's smaller-format stores would fall in the range of 60,000 square feet to 100,000 square feet, compared with the company's prototype of 130,000-plus square feet, Scovanner said.
“We have a smaller format in the laboratory, and we have tested reducing our SKU assortment in a handful of stores in preparation for launching a smaller format within the next couple of years — stores in densely populated urban areas offering enough breadth of assortment that you'd know it's a Target store but operating in very expensive real estate with relatively high productivity levels.”