Retailer Target taps demand for office-space makeovers

* Target unit's sales outpace business furniture industry

* Clients include Chicago Cubs, healthcare companies, Target

* Tiny unit benefits from pent-up demand to update space

By Jessica Wohl

Aug 9 (Reuters) - Across the street from Target Corp's Minneapolis headquarters sits a little-noticed office showroom that happens to house one of the retailer's best-performing businesses.

Target Commercial Interiors is a relatively unknown part of a company known for its bullseye logo and so-called cheap chic apparel.

Still, it is significant enough to merit a mention in Target's annual report and, even more, offers a glimpse into how U.S. companies have started to spend more to freshen their digs.

After recovering from an industry downturn, when the great recession pushed companies to reduce spending, sales growth at Target Commercial far outpaces that of Target itself. The business projects a strong 2012.

The Fortune 250 "is starting to spend a little more capital," though "cost is prevalent among most conversations," said Jamie Lowe, senior vice president of strategic alliances.

Companies are updating offices that were ignored in recent years, replacing high-walled cubicles with long tables and benches where workers collaborate. Such changes give offices a makeover and can help attract new talent.

"As more and more of the Gen Y-ers and younger employees come into the workplace, they don't care so much about the corner office or dedicated workspace," said Target Commercial Interiors General Manager Mike Litwin.

Back in 2009, the U.S. office furniture market slumped, with sales plummeting 29 percent to $9.23 billion after a 3.2 percent decline in 2008, according to the Business and Institutional Furniture Manufacturer's Association.

Target Commercial's own sales fell 35 percent in 2009 and were flat in 2010, Litwin said. Sales then rose 16 percent in 2011, eclipsing Target's overall revenue growth of 3.7 percent and the 12.7 percent growth in the U.S. office furniture market.

This year started out strong as well, executives said.

"Our first-half sales were substantially beyond what first-half sales have been in 2011 or 2010," said Litwin, who predicts that sales could rise by 12 to 20 percent in 2012.

Such growth, which includes international projects, would far outpace the 4.8 percent sales increase expected in the overall U.S. office furniture market.

Still, Target Commercial's undisclosed revenue is unlikely to gain much attention for Target overall, where annual sales approach $70 billion. The unit has roughly 160 employees, while each of Target's 1,772 stores employs an average of 200 workers.

"It's not a needle-mover by any stretch," said Barclays analyst Robert Drbul. "I don't get the sense that they spend that much time from an executive level focusing on it."

Target Commercial executives say they operate largely on their own, though they are connected "very tightly" with Target on financial measures. The unit, a major seller of Steelcase furniture, competes against companies such as OfficeScapes, One Workplace, Red Thread and Tangram.

One of Target Commercial's recent projects was to help turn a warehouse and parking garage into office space for more than 125 employees of the Chicago Cubs Major League Baseball team.

Before the move in March, staff worked in about 10 locations in and near Wrigley Field, including in trailers in the parking lot. Even those who worked inside Wrigley did not have upscale work spaces. Wally Hayward, the team's chief sales and marketing officer, said his office sat in what used to be a women's restroom. Employees could often hear beer kegs rolling overhead.

Now, the Cubs staff works up the street from Wrigley Field in a nondescript, low brick building. Sports Illustrated magazine covers featuring the Cubs hang on the wall and the boardroom table features baseball stitched panels.

Other clients include General Mills Inc, Marriott International Inc, and universities such as Arizona State.

Target hires Target Commercial to furnish its offices and helps it with areas such as procurement and human resources. Being associated with the retailer can be an advantage when pitching new business.

"It does help open doors," said Litwin.