Target CEO sees shoppers re-emerging

MINNEAPOLIS (Reuters) - U.S. consumers are cautiously opening their wallets to buy items like clothing and home furnishings that they passed on in the recession, but the recovery is likely to be uneven, the CEO of discounter Target Corp TGT.N said on Friday.

“We’re going to see the consumer come out and the consumer withdraw and so I think there is still going to be a fair amount of volatility,” Chairman Chief Executive Gregg Steinhafel said in an interview at the discount retailer’s headquarters in Minneapolis.

“While I wouldn’t say it is back to normal, it is a lot better than it has been,” he said of spending at the company’s stores.

The mixed behavior has been seen in recent month. Target outperformed larger rival Wal-Mart Stores Inc WMT.N in terms of same-store sales growth during the key 2009 holiday season, which was seen as a sign that the consumer was willing to spend.

But on Thursday, Target posted a larger-than-expected drop in April same-store sales, adding to concern that the recovery may be spotty.

Consumers “are still cautious, but I think that they have seen the worst and they feel pretty good,” Steinhafel said.

Still, a smaller number of customers who are unemployed, underemployed or carrying high debt are only spending on everyday essentials, he said.

Even what passes for “normal” now is not a return to the free-spending ways of several years ago, when consumers were using then-soaring home values and stock portfolios to help fund spending that was ultimately beyond many people’s means.

The customer today is “not quick to spend, she’s not lavish, but she’s willing to spend when the value is right,” he said.

He also does not expect that to change any time soon.

“This is a very serious economic recession and it’s going to have far longer-lasting consequences than some of the other dips,” he said.

Target is taking several steps to help attract customers, including putting an expanded selection of food in stores and remodeling 340 stores this year with shorter shelves to create a more open feel, enhanced areas for items like beauty products and displays for products like sheets and pillowcases that more clearly explain the items’ attributes.

The company also plans to open three smaller, urban stores this summer, testing a new format that could fit where a larger store does not. Steinhafel said the company is looking at real estate to roll out the new stores -- which could be half to 80 percent of the size of a typical Target -- in 2012 to 2014.

The stores would have a “highly edited” mix of items, he said. A typical Target currently has about 80,000 SKUs -- retailer jargon for distinct sizes and styles of products offered -- while the smaller stores would have 40,000 to 50,000 SKUs.

The company is focusing on opportunities like remodeling and the small format to increase sales in the United States. but at some point Target will also look to expand internationally and the company is studying Canada, Mexico and Latin America as likely first steps when that time comes.

“Canada is a natural,” Steinhafel said, noting that 60 percent of Canadians are familiar with the Target brand and its red-and-white bull’s-eye logo.

Steinhafel was reticent to say how the company expected sales to fare in the key holiday season this year.

“Our position is better than last year, but still cautious.”

Trish Adams, Target senior vice president for merchandising, apparel and accessories, said the company expects apparel sales for the holidays and the back-to-school season to be better than last year, but echoed Steinhafel’s caution.

“I think we feel good, provided unemployment doesn’t get disproportionately worse and there isn’t a major crash, that there is some opportunity in the business,” she said in a separate interview.

Target is also slowly starting to hire again at the corporate level, “very selectively, very surgically,” Steinhafel said.

But one of the lessons the company learned during the recession is the value of being lean and nimble to more quickly react to changing markets.

“If you go back 2-3 years, we would have wished we would have been slightly more disciplined in how and when and where and how many people we added in boom times,” he said.

Reporting by Brad Dorfman; Editing by Gary Hill