Pushing the limits of off-price retail - Dayton-Hudson Corp. Target Stores - Growth Retailer of the '90s

Pushing the Limits Of Off-Price Retail

Differentiation and exclusivity.

Target's ability to step beyond the confines of a stereotypical discount department store has been its greatest strength and is the key to its future success.

A commodity retailer that nevertheless garners at least as much growth from fashion categories like home textiles and apparel, Target achieved an enviable record of sales and earnings growth in the '80s.

Along with Wal-Mart, the Minneapolis-based division of Dayton Hudson Corp. is the rare discounter whose future fortunes are talked of in glowing terms by nearly all industry observers. Target is clearly one of the growth retailers of the '90s.

The winner of Discount Store News' 1989 Discounter of the Year Award, Target generated $7.5 billion in sales last year, a 19% increase over the previous year's results. With plans to add 700 stores over the next five years, Target sales could hit $15.5 billion by the end of 1994, according to a DSN projection.

Profits are likely to grow too, because of efficiencies achieved through investment in point-of-sale scanning at all stores, electronic data interchange and Quick Response relationships with its vendors, state-of-the-art distribution facilities, and computer-enhanced store staffing systems. Operating income of $449 million in 1989 ranked third behind Wal-Mart and K mart, but the 31.7% increase over the previous year was the best percentage gain in the industry.

Store expansion in the next five years will occur mainly in existing markets, with emphasis on California, the Pacific Northwest, Michigan, Ohio, Illinois, Florida and the Southeast. However, while Target does not have any definitive plans to invade the Northeast, "I certainly would feel we'd be a truly national chain some time in the decade," said chairman and ceo Robert Ulrich, during an interview with DSN at Target headquarters this summer.

Of course, that means Target will be butting heads more often with Wal-Mart, the Bentonville, Ark-based discounter that has been the most successful retailer in the '80s.

Target executives don't flinch at the prospect of taking on the Bentonville Behemoth. Ulrich pointed out, "There's more of a difference between Target and the Wal-Marts and K marts. There's an upscale feeling at Target, our quality is a notch higher and we're a little quicker on fashion trends" than most other discount chains.

With consumers facing a seemingly never-ending stream of monotony and conformity in their shopping choices, Target has always been able to offer them something different, something unique.

"I really think we have increasingly focused on the notion of differentiation at Target," said Warren Feldberg, executive vp of merchandising, "Differentiation has got to be the key to our success in the future. We're got to have a hook that entices that customer into our store instead of a Venture, or a Wal-Mart, or a K mart."

With so many retailers selling the same branded merchandise, it's not easy to differentiate oneself from the pack.

"We're going to offer Hanes and BVD underwear, Black & Decker and Stanley tools. There's not a whole lot of differentiation there. You just offer products the customers want," said Feldberg. "So we try very hard to encase all those products with others that are exclusively ours, or that we developed, or got earlier than someone else."

Few mass retailers are as involved with product development as Target. The Country Estates program in domestics (see HomeMarket Trends inside this issue) is one example of Target's innovative role in product development. Target designed the line with its supplier. "Our people did research with patterns, color trends," he said. "We went to the manufacturers, we worked with them to refine the idea. We selected products to put it on and now we have a completely integrated and coordinated set of merchandise that spans not just bedding products, but bath products as well."

That type of product development, for example, allows Target to "build" an all-cotton men's knit shirt comparable in quality to any on the market. "We retailed it for $14.99, saled it for $9.99. They don't shrink, the colors are good. As a result, we offer something of value to our customers that they can't get anywhere else," he said.

However, national name brands are often synomymous with quality, and Feldberg acknowledges that But, you won't find the type of vendor banners and manufacturer-supplied fixtures that overwhelm customers at some other discounters striving for an upscale ambience.

"We're proud of the brands we sell. It's not that we try to minimize their names, it's that we have, for better or worse, tried to keep the aesthetic focus of the interior of our stores fairly uniform," said Feldberg. "So as a result, we don't have large signs with Black & Decker, Polaroid or Kodak. That's not because we want to underplay the brand, it's simply because we want to create a uniform exterior." Indeed, uncluttered by reams of vendor signage that looks the same from store to store, Target units keep their distinctive look.

"Brands are important, and will continue to become terribly important to our growth," said Feldberg.

If Target has any chink in its armor, it could be the chain's "personality," as perceived by its customers and employees.

Target stores have a reputation for being clean, well-organized and offering a good value, but they also can be cold, uninviting and austere. In the past, store managers have bemoaned their lack of authority to make merchandising decisions at this highly-centralized organization. More than one associate has compared working at Target to being in the Marines.

"We'd like our customers to feel more warmly about Target," said Feldberg. "Marketing helps in that regard."

As a first step, Target began adding to customer service-related payroll costs.

And, since former Dayton Hudson department store marketing executive John Pellegrene joined Target two years ago as vice president of marketing, Target has recast its image to the public.

Using wholesome personalities like country singers Amy Grant and the Judds, puppeteer Shari Lewis and soulful Aretha Franklin, Target has softened its hard edges. Exclusive agreements to promote the Casper the Friendly Ghost and Alvin and the Chipmunk characters also reflect the new "fast, fun and friendly" image Target is trying to project to both its customers and employees.

"Fast, fun and friendly" is Target's attempt to shed its rigid approach to operations and personnel management.

"We're putting some of the feeling back into an overly regimented company," said senior vp for personnel Larry Gilpin.

As a result, there's a more upbeat atmosphere throughout Target's midtown headquarters and the retail stores exude a visible improvement in attitude and ability to serve customers.

Even the rather reserved Ulrich has taken "fast, fun and friendly" to heart. "We all try to be a little more loose," he said. "I try to dress more casually when I visit stores. I spend more time talking with employees."

Target is poised to achieve its goal of opening 300 stores over the next five years and make a reality of its unofficial vision of becoming a national chain. "The customers are out there voting every day, so we must be the absolute best in terms of giving the customer what he or she wants," said Ulrich.

"We have some major strengths in the merchandising area. We offer good assortments and quality and trend-forward merchandise. We've taken a lot of steps in the technology and distribution area to give us the logistical capability of doing that. And now we're concentrating very hard in the stores, and adding some service enhancements to make the in-store experience much more exciting and fun.

"Put that all together, and we're going to be a very rapidly growing and profitable company. We'll be good for our employees and good for our resources. We've got a dynamite machine and we just want to make it better."

In short, the Target machine is fully oiled and running on all cylinders as it takes on the '90s.

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