January 21, 2010 / 1:55 PM / 8 years ago

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.
 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)     

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