UPDATE 3-Target seeks growth from small stores, overseas

* Smaller urban store to be tested in next few years

* International expansion beyond a 3-5 year horizon

* PFresh could be added to all general merchandise stores

* Shares slide 50 cents, or 1 pct
(Recasts first sentence, adds company comment, updates stock
price)

By Nicole Maestri

SAN FRANCISCO, Jan 21 (Reuters) - Target Corp (TGT.N) plans
to remodel 340 stores, develop a smaller format for urban
markets and expand overseas as the retailer pursues growth in
the next five to 10 years.

The No. 2 U.S. discount chain also signaled it could have a
"home run" with its "PFresh" concept, where it is offering an
expanded selection of food. It has already seen a lift in sales
and traffic at the 108 stores that have been outfitted with the
new concept as shoppers snap up the food.

Target made the comments on Thursday at its analyst
meeting, where it outlined for Wall Street ways it would return
to growing a business that had been upended by the downturn.

Target's business faltered during the housing market bust
and ensuing recession as shoppers stopped splurging on its
trendy clothes and home decor. Meanwhile, discount behemoth
Wal-Mart Stores Inc (WMT.N) thrived as shoppers sought its
low-priced food, medicine and other daily essentials.

Target said it is now focused on improving sales of
consumable goods, like food or beauty products, that attract
shoppers for repeat visits.

It is also using its marketing might, including store signs
and newspaper ads, to highlight its low prices and woo shoppers
who may equate its trendy image with higher prices.

"We realize changing price perception is a marathon not a
sprint, but we're moving in the right direction" said Kathee
Tesija, Target's executive vice president of merchandising.

Target shares fell 50 cents, or 1 percent, to $50.22.

FOOD A LURE TO SELL MORE CLOTHES

Despite an emphasis on low prices and groceries, executives
insisted Target was not abandoning its chic but cheap roots.

The retailer announced plans to sell limited-time clothing
lines by designers Jean Paul Gaultier and Zac Posen, and said
it is positioning itself to win shoppers' home decor business
when the economy improves.

"We're really focused on winning in the discretionary
categories," said Chief Executive Officer Gregg Steinhafel.

Target operates more than 1,740 stores, including 250
SuperTarget stores, which combine a full grocery store with a
discount store.

Its new concept PFresh -- or prototype-fresh -- offers a
wider selection of fresh food and groceries, such as meat and
bakery items, in its general merchandise stores.

The retailer previously said it was following a "lean, new
store program" for 2010 -- opening no more than 10 new stores,
net of closings and relocations. Now, it plans to spend about
$1 billion in 2010 renovating 340 stores and adding PFresh to
350 stores, more than triple the current number.

Target said sales and traffic in the stores with PFresh
have already risen, on average, 6 percent, since their
conversion. It expects the benefits to continue.

"We believe over time our enhanced food offerings will
filter throughout the rest of the store" and shoppers will be
enticed to buy non-food items, like clothes, Steinhafel said.

While it still has the ability to open full-sized discount
stores in the United States, Target said it was working to
develop a smaller store format to fit into dense urban markets.
To determine how to run a smaller store profitably, Target said
it will test a new "assortment approach" in three stores that
will offer 50 percent fewer items.

Target's plans echo expansion tactics used by its larger
rival Wal-Mart, which has saturated many U.S. markets. At its
analyst meeting in October, Wal-Mart said it would rely on
smaller, more efficient stores to drive future U.S. expansion
and help it tap into urban markets.

Wal-Mart runs more than 8,424 locations in 15 countries. It
said international operations were gaining in importance and
that international square footage growth would outpace U.S.
growth in its current fiscal year and next. [ID:nN226823]

Target offered few specifics on its international goals
besides saying it would most likely open stores in Canada,
Mexico or Latin America at some point beyond three to five
years.
(Additional reporting by Jessica Wohl in Chicago, editing by
Dave Zimmerman, Maureen Bavdek and Matthew Lewis)