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Target: Food drives frequency but discretionary goods still important

New York - Target's newly appointed evp and cfo John Mulligan sought to put the investor and analyst community at ease about the retailer's emphasis on consumables over discretionary categories during his presentation yesterday at the Citi 2012 Global Consumer Conference.

"For us, it has been all about driving food in order to get people into our stores," he explained. "Far from driving people out of our discretionary categories or walking away from them, food is the avenue to get people into the stores. But if we're not selling those discretionary categories, we're just another grocery store."

Mulligan, who was promoted to his post April 1 and has been with Target for 16 years, said he wanted "to spend a little bit of time talking about frequency and operating margins. And the question you might be asking yourself is, ‘Why are we talking about this?'"

Mulligan said in the past few weeks he has had "many, many conversations about PFresh...and concern as to why we are walking away from our discretionary businesses in favor of selling food as a result of the recession."

Target has given focus for some time now to its food offerings - but, he urged, "as a driver of frequency and how we sell discretionary items as well. Historically, over the past decade, we have been driving food penetration really as a part of our frequency strategy. And as we've done so we've managed to increase sales in all of our discretionary categories as well."

Over the past five years, Target's sales have grown more and food sales jumped 83%, from 12% of the total assortment to 19%, Mulligan noted.

"Importantly, now we are a place where we have this very balanced portfolio of categories we're selling - about 20% food, 20% health and beauty, 20% apparel, 20% home, and 20% hard goods - a great mix of products," he said, "and the key for us is that food drives traffic into the store."

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