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Target emphasizing price, identity in tough economic times

11/10/2008

MINNEAPOLIS —Gregg Steinhafel has spent nearly 30 years with Target, so he’s seen a lot of ups and downs in the retail industry. However, since being handed the reigns six months ago as ceo, his company has faced some of its greatest challenges and is currently experiencing what Steinhafel has called its weakest sales and profit performance in recent memory.

These are indeed tough times at Target, where negative monthly same-store sales and rising delinquency and charge-off rates in its credit card business are pressuring profits. Target has responded by emphasizing the “pay less,” aspect of its familiar “expect more, pay less,” brand equation, but doing so requires a delicate touch, since Target is best known for its carefully-cultivated, trend-right image. Late last month, Target’s top executives met with financial analysts and outlined various advertising and merchandising strategies the company is using to establish itself as a destination for value. Some of the most visible changes involve increased price promotions on endcaps and more value-oriented messages in advertisements.

“We remain keenly focused on ensuring our prices match Wal-Mart’s on all identical and similar product in local markets, something we have been doing for well over a decade,” said Kathee Tesija, evp of marketing. “Our pricing team consistently shops the competition and for years, we have been within 1% to 2% of Wal-Mart’s pricing and we are diligently ensuring that we stay there.”

Even tough Target’s same-store sales have declined five of the past six months, the emphasis on “pay less” has caused concerns that the company is eroding the core of its brand message and engaging in a pricing battle with Wal-Mart it can never win. “The changes we are driving will not change the essence of the Target brand or the Target shopping experience,” Steinhafel said in an effort to reassure analysts the company wasn’t eroding its brand identity. “I strongly believe that 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 retail industry long after the current economic crisis is behind us.”

In the meantime, the company is controlling what it can through a range of expense control initiatives, and mirroring the action of virtually every U.S. retailer to scale back store expansion efforts. Next year, the company plans to open about 70 new stores, compared to the 110 units it will open this year, a figure that includes 45 stores that opened in early October. Among those units, were two pilot stores in Minnesota that feature new merchandising elements and building materials and will be used as models for a new prototype to be introduced in 2009.

According to evp of property development John Griffith, store exteriors have been upgraded through the use of brick-and-stone veneers. “We have enhanced our store interiors as well, to include innovative new fixtures in apparel that help create wider shopping aisles and contribute to a better shopping experience and increase sales,” Griffith said. “And we’ve reconfigured our electronic layout to improve sightline to our TV wall to help increase sales in this important category.”

The company also is experimenting with the addition of expanded fresh food departments at its discount stores, which could help generate increased store traffic. According to Griffith, the test involves the addition of dry and frozen products and fresh food items such as product, meats and baked goods.

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