The year that just ended was a watershed time for Target Corp. It was a period marked by the retailer’s decision to expand beyond the U.S. border for the first time.

Target Corp., REDcard Rewards loyalty program, MMR, Gregg Steinhafel, Targetís chairman, president and chief executive officer, 2011 Mass Market Retailer of the Year, Zellers Inc., Canada, PFresh, Target Debit Card, arget marketing chief Michael Francis, J.C. Penney Co.

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Inside This Issue - News

Targetís Steinhafel presides over a year of new innovations

January 9th, 2012

MINNEAPOLIS – The year that just ended was a watershed time for Target Corp. It was a period marked by the retailer’s decision to expand beyond the U.S. border for the first time.

It was a year when Target’s innovative REDcard Rewards loyalty program, which was launched in October 2010, gained significant momentum.

It was a period when the discount retailer expanded its commitment to food while simultaneously unveiling a small-store format with which it hopes to attract urban consumers who have until now been denied reasonable proximity to a Target store.
Atop these innovative programs was the retailer’s performance. Simply stated, sales and earnings surged to new levels of productivity.

For these reasons, among others, the editors of MMR have named Gregg Steinhafel, Target’s chairman, president and chief executive officer, the publication’s 2011 Mass Market Retailer of the Year.

In terms of new courses charted, new directions begun, new innovations unveiled and new avenues explored, 2011 was a year of achievement for Target. As the most obvious example, a company that for most of its history had insisted that it was in no hurry to expand outside the United States, made a stunning move early last year with the agreement to acquire up to 220 leasehold interests from Zellers Inc.’s discount department stores in Canada. Since the purchase was announced, Target has embarked on a two-year program to transform the majority of the stores to the Target banner and merchandise assortment. More specifically, the retailer has selected sites for 189 stores, 125 to 135 of which will be reopened as Target stores over a two-year period beginning early next year.

Says Steinhafel about the acquisition: "Canada provides us with a natural extension of our business. We’ve found that 70% of Canadians are familiar with Target, while 11% have shopped a Target within the last 12 months."

Between now and March 2013, the date tentatively slated for the first Canadian openings, the Zellers stores will be extensively renovated. According to Steinhafel, some $10 million to $11 million will be spent to remodel each outlet. "These stores will be the best of Target but with a Canadian twist,” he says. “In other words, they will be customized to the Canadian consumer."

Additionally, Target will bring to its Canadian communities the philanthropic package that has been amply and justly praised in the U.S., the most prominent feature of which is its involvement with and commitment to the communities it serves. "We want to do this right," Steinhafel says.

Ultimately, Target plans to open over 200 stores in Canada.

Closer to home, the company in 2010 began rolling out its PFresh program designed to expand its food offering. At the moment, some 900 stores have gotten the PFresh food assortment (some 800 remodels and almost 100 new stores), one designed to enable the consumer to satisfy most of her grocery needs at Target.

"Our guests have indicated that they want a complete shopping experience from Target," says Target’s CEO, "something that’s been denied them until now. They’ve been particularly insistent that we offer them fresh, frozen and dairy products. That’s what PFresh is all about."

Indications are that the program has been particularly successful thus far in attracting new customers to Target and encouraging current shoppers to make the retailer a destination for food purchases. Additionally, it has served as an impetus for remodeling those Target stores designated to receive the PFresh mix.

"PFresh has forced us to remodel stores we might otherwise have neglected," says Steinhafel.

Moreover, Target’s CEO insists that those remodels — which have emphasized new fixturing and carpeting and lower-profile gondolas — have been handled very economically.

As well, Steinhafel asserts that the expanded food offering has simonized Target’s ongoing efforts to be perceived as a low-price retailer. "We’ve been very successful in conveying the ‘Expect More’ portion of our message," he says. "PFresh has given Target new opportunities to emphasize the ‘Pay Less’ part."

Hand in hand with the PFresh program has come the innovative and initially very effective REDcard rewards program, which returns 5% of the total purchase price to guests who use the card at Target and In addition to changing customer behavior — Steinhafel says that guests spend 40% to 50% more with the card, largely driven by more trips — Target’s chairman asserts that the program bridges the gap between the retailer’s actual pricing and the perception of higher prices long prevalent among some Target shoppers.

Additionally, and perhaps most significantly, the REDcard program has brought new customers to Target, who are especially attracted to the Target Debit Card.

In the year of breakthrough programs and innovative initiatives that Steinhafel has supported and led, among the more radical has been the retailer’s urban concept. The smaller-size format — which varies from 50% to 80% of the size of a typical Target — is currently undergoing a three-store test, in Edgewater, N.J., Napa, Calif. and Chicago. A total of five urban stores will be open for business within a year.

The object, once again, is to attract those customers who have until now been unable or unwilling to shop a Target store, an audience that Steinhafel believes has been underserved. "We’re interested in serving a younger urban consumer, one consisting of newly married couples and families with young children," he explains. "The merchandise mix in the urban stores will be more relevant to that consumer, leaning more heavily to clothes for younger children while reducing the assortment of apparel for teens. Here again, we want to encourage our guests to shop Target for its irresistible value proposition and hope ultimately to get them to view Target as their favorite store."

Finally, or perhaps not, 2011 was the year that Target terminated its relationship with Amazon, the Internet retailer that had partnered with Target in giving customers the option of buying merchandise from the discounter online. "Amazon provided us with a best-in-class learning experience," Steinhafel says. "But we felt it was time to develop our own online experience, to make a commitment to a multichannel initiative."

Target’s chairman believes that while an online shopping option is critical, especially to attract younger, more affluent shoppers, online retailing will never satisfactorily replace a bricks-and-mortar experience. That said, Target worked hard to deliver a multichannel experience during the just completed holiday ­season.

Amid these initiatives, there have been others in 2011, most notably the autumn debut of the Missoni collection, an offering that crossed and transcended merchandise categories and departments in becoming, virtually overnight, the most successful designer collaboration in Target’s history. Impressively, the retailer plans to follow this success with the introduction next month of a Jason Wu collection.

Behind all this activity, and in part because of it, are today’s results and tomorrow’s projections. For the fiscal year that ends later this month, Target is expected to record sales of around $69 billion, with earnings between $4.15 and $4.30 per share. By 2017, the retailer anticipates reaching $100 billion in sales and earnings of $8 per share.

"We’re excited about what’s going on here," says Steinhafel. "Our same-store sales growth is solid, our new initiatives appear to be working."

Commenting on the sudden departure, last fall, of Target marketing chief Michael Francis, who left to become president of J.C. Penney Co., Steinhafel candidly admits to being surprised and disappointed, but pleased that Francis believes new opportunities awaited him elsewhere. "He’s an immensely talented marketer," says Target’s CEO, "but Target has never been a one-man operation. Here, it’s about the team."

So saying, Steinhafel not surprisingly reserves his strongest praise for the in-store Target employees that, he rightly believes, makes the shopping experience special.

"I can’t say enough about the resilience of the Target team," he emphasizes. "Both in the stores and at headquarters, they combine passion, commitment and dedication to a degree I’ve seldom seen in the retail community."

Much the same can fairly be said for Gregg Steinhafel, MMR’s 2011 Mass Market Retailer of the Year.