SUPERTARGET 'PREFERRED' FORMAT IN GROWTH PLAN

NANCY BRUMBACK

MINNEAPOLIS (FNS) -- Target Corp. here said last week that SuperTarget, its supermarket-discount store combination, will be the company's "preferred" store format from now on, wherever space permits.

Robert J. Ulrich, chairman and CEO, told the annual meeting here last week that Target plans to double the size of the 991-store chain over the next few years, with an emphasis on SuperTargets. "In the long term," he said, "we believe SuperTarget will contribute significantly to our square footage and sales growth.

"SuperTarget affords an opportunity to replace older discount stores with limited capacity for continued growth with our newest and biggest format."

While stockholders filled the Children's Theater auditorium, not one had a question for company executives during 20-minute the meeting.

Target said it expects to open an additional 70 stores in 2001, 30 of them SuperTargets. Currently, there are 37 SuperTargets in 13 states.

At a press briefing after the meeting, Douglas A. Scovanner, executive vice president and chief financial officer, said that in new SuperTargets, about 80% of the sales come from merchandise available in all Target stores, with 20% of sales coming from the additional supermarket products.

Conventional Targets carry a range of dry grocery products, particularly snack foods and soft drinks, as well as health and beauty aids, that would be found in a supermarket.

He added there is no wish to alter that 80-20 mix. "Our gross margin rate is considerably higher inside the 80% of the mix," he said.

Increased shopper frequency is one key reason for the emphasis on SuperTarget.

"The average ticket at a SuperTarget is slightly higher than in the rest of the chain," Scovanner said, "and the frequency of guest visits approaches two times the frequency in the rest of the chain."

The chain plans to open SuperTargets in the Minneapolis area and other Minnesota markets beginning in July, and a local reporter noted that the area's supermarkets had strong unions while the Target stores do not.

Ulrich replied Target has very good relationships with its employees.

"We don't see that union representation would be good for our team members or our company or our guests," Ulrich said. "We would hope the union would concentrate on situations where there may be a need for them rather than at Target, where there certainly is not."

Asked what changes have been made in the SuperTarget format since its inception, Ulrich replied, "We took a fair amount of time to develop the concept" and added it "works really well. It's exciting, efficient and has good profitability."

Gerald Storch, vice chairman, briefly noted Target's experiments with E-Trade financial centers in some SuperTarget locations and an America Online kiosk providing access to target.com in one SuperTarget in Dallas.

Target's planned new stores will be both in newer markets, such as New York, Boston and Philadelphia, and in already mature markets, such as Atlanta, Phoenix and Dallas, where the company plans to increase its density, Ulrich told shareholders.

Asked about the current retail climate, Ulrich said, "I definitely feel the economy has not started to show strength yet. For us, it started slowing down last year in the second quarter. We are a little more optimistic about increases over the last half, but I don't see the economy snapping back all that quickly."

As for the Christmas season, "We feel Christmas will be reasonable, but that is in comparison with last year, when Christmas had already started to soften up. We'll have a reasonable Christmas, but we're certainly not looking for an outstanding one."

Replying to a question on whether Wal-Mart will intensify the difficult retail environment with price cuts, Scovanner said, "If we see a different pricing behavior on Wal-Mart's part, that certainly would put pressure on our financials.

"We already are matching Wal-Mart's prices within pennies on a day-in, day-out basis. We will continue to do that."

Ulrich told the annual meeting that Target continues to expand its financial services operations, with emphasis on growing its store-brand credit cards. The Target chain also began testing a Target card with Visa capabilities in three markets last year, Phoenix, Denver and Atlanta, and will decide later this year whether to proceed with that initiative.

Also last week, Target reported its results for the 13-week first quarter ended May 5. Sales rose 7.7% to $8.2 billion, comparable-store sales increased 1.7%, net earnings were up 6.2% to $254 million, and earnings per share were 28 cents, compared with 26 cents in first quarter 2000.