NEW YORK (Reuters) - Discount retailer Target Corp TGT.N said on Thursday it has scaled back its 2009 store opening plans and toughened standards in its credit card business to improve results in an economic slowdown.
“We are not happy with the current pace of our sales, and we are working diligently to drive our top-line performance,” said Chief Executive Officer Gregg Steinhafel, speaking at an analyst and investor meeting broadcast over the Internet.
While Target has made a name for itself selling cheap but trendy designer clothes and home decor, its business has faltered recently as shoppers shift spending in favor of basics, like food and toiletries.
In August, it reported its fourth straight quarterly profit decline even as larger rival Wal-Mart Stores Inc WMT.N saw profits rise from consumers seeking out bargains.
Target said on Thursday it has reduced its 2009 store opening plans, canceling some projects that no longer make financial sense.
“We’ll now open about 70 net new stores in 2009, and we know we will open fewer still in 2010, although it’s a bit premature to speculate just how many,” said Chief Financial Officer Doug Scovanner.
In August, Target said that for 2009, it was projecting adding about 70 to 75 net new stores.
The retailer also told analysts it is working to improve results in its credit card business.
Earlier this year, Target sold a 47 percent interest in its credit card business to JPMorgan Chase & Co JPM.N for an initial investment of $3.6 billion. Target continues to run that operation.
As the economy has deteriorated, analysts have feared the credit card operations will hurt Target’s profits as more customers fail to pay their bills. Earlier this month, Target warned its third-quarter earnings per share could miss Wall Street estimates as more credit card loans go bad.
Target shares fell 1.4 percent to $32.96 in afternoon trading.
LIMITING CREDIT RISK
Target said on Thursday it has increased its collections “intensity,” making contact with card holders earlier than in the past when they fail to pay their bills. It has also become more aggressive in reducing credit lines for card holders.
Scovanner said credit card segment profit for 2008 will likely be below levels it reported in 2005.
Target also said it is placing more emphasis on the “Pay Less” side of its “Expect More. Pay Less” tagline to appeal to cash-strapped shoppers. For instance, it is putting fewer items in its weekly circular, but putting more emphasis on prices.
As shoppers remain focused on buying necessities, Target also said it is testing a general merchandise store with a bigger selection of food, such as frozen and perishable items.
But Steinhafel made it clear that the retailer does not intend to change its long-term business strategy of differentiating itself with unique, trendy merchandise.
“Let me be clear, the changes we are driving will not change the essence of the Target brand or the Target shopping experience,” he said.
“Staying true to the strategy and brand experience that have driven our success for decades is imperative if we are to remain relevant to our guests and continue to be the leader in the retailer industry long after the current economic crisis is behind us,” he said.
Reporting by Nicole Maestri, editing by Gerald E. McCormick
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