TARGET TAKES SUPERCENTER FORMAT INTO SOUTHEAST

Elliot Zwiebach

MINNEAPOLIS -- Target Stores here said it plans to continue the expansion of its SuperTarget format from its Midwest base across the Southeast.

"We're not trying to avoid Wal-Mart," Bob Ulrich, chairman and chief executive officer, said in response to a question by a financial analyst, "because our assumption is that Wal-Mart will be everywhere eventually.

"We're looking at all potential locations. But our preference is to expand our geography in contiguous areas where it makes sense, rather than scattering stores all over the U.S. Right now, we're expanding SuperTargets gradually from the Midwest into the Southeast.

"But it's not easy finding 17 to 20-acre sites in upscale areas with high populations that will support a SuperTarget, and that's the only thing slowing down our expansion [of the format]."

Target operates 106 SuperTarget locations -- compared with 82 a year ago -- including four new stores opened during the second quarter. Ulrich said the company is comfortable with growing square footage for supercenters at an annual rate equivalent to approximately 30% of its total new-store growth, "though we could have a blip upward if we could find more real-estate opportunities," he noted.

Ulrich made his remarks to analysts following release of Target's financial results for the second quarter and six months ended Aug. 2, which showed sales up 9.1% to $11 billion for the quarter and 8.4% to $21.3 billion for the half, while net income was up 4.1% to $358 million for the quarter and 2.7% to $707 million for the six-month period.

Comparable-store sales climbed 1.5% for the quarter and 0.7% for the half, with comps at SuperTargets increasing "in the high single digits," Ulrich said. "Our business at SuperTarget is quite healthy," he pointed out, "with sales of consumables [at SuperTargets and the food sections within the chain's discount stores] growing at a faster rate than for the company in total, so we're pleased with that performance."

However, he added that a faster growth rate for consumables "is not a new phenomenon."

Ulrich said Target is committed to its longstanding everyday-low-pricing approach on consumables, and is cutting back on the number of promotional ads it runs. "Although we have run occasional ads, we've never had a high-low program in food, and we've now cycled all but three promotional vehicles from last year."

In other comments during the conference call:

Ulrich said Target remains committed to using outside wholesalers for perishables, but intends to move 2,000 dry grocery items from wholesalers to its own distribution centers this fall "to reduce costs and increase the frequency and reliability of store deliveries."

Greg Steinhafel, president of the company's Target Stores division, said margins on consumables are stronger this year than last "because of our greater scale, greater negotiating power and increased penetration of private label, which help remove some of the margin pressure."

However, Ulrich said Target is increasing its commitment to private brands in both foods and nonfoods "to offset the margin implications of growing consumables as a larger part of sales."