Target preps cross-border, urban moves
Target is branching out.
Buoyed by surging profits and customer satisfaction scores, the Minneapolis-based giant is reaching into Canada, preparing a new small-store format for urban areas and going after a bigger share of the nation’s grocery dollar. Target also is spending billions on store renovations, aggressively leveraging a new loyalty card program and growing its commitment to health at its pharmacies and in-store clinics.
Target executives have been energized by the company’s ability to navigate the Great Recession and maintain consumer loyalty. Behind their optimism: a 21% jump in per-share net earnings in fiscal 2010, ended Jan. 30, 2011, along with a respectable 2.1% increase in same-store sales. For the year, net income surged 17.4% to $2.92 billion, with sales up 3.7% to $65.8 billion.
In early April, the company received more affirmation when consumers, for the second year in a row, named Target the nation’s top value retailer in the 2011 Harris Poll “EquiTrend” survey.
Target chairman, president and CEO Gregg Steinhafel laid out bold plans for the Minneapolis-based chain. “In 2011, we will continue to focus on driving sales and traffic and providing an enhanced shopping experience through key strategic initiatives that include our ambitious remodel program, 5% REDcard Rewards and the launch of our new Target.com platform,” he said. “Beyond 2011, we plan to expand our store footprint in new ways, opening our first CityTarget stores in 2012 and opening 100 to 150 Canadian Target stores in 2013 and 2014.”
The CityTarget stores will be roughly half the size of the company’s 110,000-sq.-ft. prototype and reportedly will carry a large offering of fresh foods and a more limited assortment of apparel and general merchandise geared to in-town living. Target recently unveiled plans to open “small-format locations” in urban markets across the United States, beginning with the first CityTarget store in Chicago at the intersection of Madison and South State streets in the historic Sullivan Center, site of the former Carson Pirie Scott department store.
Target announced early this year its move into Canada, through the purchase for US$1.91 billion of Zellers, a subsidiary of Hudson’s Bay, which operates big-box discount stores, many with pharmacies. The purchase of as many as 220 Zellers store locations “will allow us to open 100 to 150 Target stores in Canada, primarily in 2013,” the company reported. Target officials predicted they would spend roughly US$1.05 billion to renovate the stores and expected the stores will generate as much as $6 billion by 2017, CFO Douglas Scovanner told analysts in May.
Target also will spend $2.5 billion in the United States this year alone, “driven primarily by a larger remodel program.” Remodeled units feature an expanded “PFresh” fresh food layout, wider aisles and a beauty department that offers what the company said is “a more engaging shopping experience.”
Target now operates 1,755 stores in 49 states, including more than 250 SuperTarget centers, some 1,565 stores with pharmacies and more than 460 units with its expanded “PFresh” assortment of fresh foods. The addition of PFresh boosted per-store sales an average of 6% to 10%, according to reports, and Target has made fresh foods a priority growth initiative. This year, roughly 400 more stores will feature the sections, according to the company.
Publix rolling with service advantage
A weak job market and enduring housing challenges in Florida weren’t enough to derail the onward march of Publix last year as the state’s leading supermarket chain expanded its total store count, grew same-store sales and ended the year with record results.
The company’s formula for success remains the now familiar combination of stellar customer service and top-notch store operations. And with these retail fundamentals forming the core of its value proposition, Publix doesn’t have to concern itself with being the lowest-priced operator in the market, as its core shoppers are willing to pay a little more for a superior store experience and old-school service where employees bag groceries and carry purchases to customers’ cars.
Publix remains a case study that customer service still matters and pharmacy plays a key role in meeting that customer expectation. Publix ended last year with a total of 841 pharmacies and a steady stream of recognition. The company earned the distinction of being the highest ranking supermarket in terms of customer service — for the 17th consecutive year — by the American Customer Satisfaction Index, a partnership between the University of Michigan Business School, American Society for Quality and CFI Group consulting firm.
“Offering premier customer service is strategic to all of us. It’s what sets us apart from our competition,” Publix president Todd Jones said.
Happy employees are more likely to take better care of customers, and by all indications, Publix is a good place to work. The company is 1-of-13 charter members of Fortune magazine’s “100 Best Companies to Work For” list, having made the cut since the list’s inception in 1998.
Look for more of the same from the company this year as the company expected to open 26 new stores, and with some cooperation from Florida’s economy, it could be looking at an even better financial performance.
Could 2011 be different?
NEW YORK — Within the next three months, a gallon of gas is expected to exceed $4.11, which previously marked the highest historical U.S. retail price set in July 2008. Prior to that, the highest that gas prices had ever been was $3.46 in March 1981.
But experts believe the Summer Gas Crisis of 2011 will look a lot different than the Summer Gas Crisis of 2008. For one thing, retailers were much more receptive to supplier price increases in 2008 than they are today, said Todd Hale, SVP consumer shopper insights for the Nielsen Group. “[But there have been] a lot of efforts made by retailers over the last couple [of] years during this recession to cut costs [and] lower prices to make them look more value-oriented to their shoppers. It’s a little difficult for them to go back on that.” That suggests higher prices will be passed along almost wholesale to the consumer, a factor that further could curtail spending, as wages remain relatively flat.
There’s also the impact of the recession to consider. Households generating more than $100,000 in annual income are faring much better today than they were in 2008. “The gas situation in 2008 carried further just because of what happened to our economy — people who had money stopped making trips,” Hale said. “Now we’ve got people who are feeling a lot more comfortable and confident about the economy.”
As many as 45% of households earning $100,000 or more said their confidence in the economy has improved over the past six months, compared with 24% among those earning less than $100,000, according to a recent Deloitte survey.
On the plus side, consumers may be better prepared to weather short-term price fluctuations at the pump today than they were in 2008. “Their short-term consumer debt has fallen,” said Gerald Hanweck, professor of finance at the George Mason University School of Management. “Consumers, in terms of their unsecured debt, are in much better shape than they were in 2008.”
However, secured debt, such as mortgages, still represents an impediment to consumer spending, so extended gas price increases would have a detrimental effect. Should higher gas price increases extend beyond the summer, that could have a major impact on consumer spending heading into the holidays, Hanweck said.