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Jennifer Marks

Target Transforming Format

Target will focus on renovating stores to a new format this year – including an overhaul of the home department – as well as longer-term expansion in urban U.S. locations and outside the country. Instead of opening its usual 60 stores in 2010, it will open only 10 on a net basis.

Target executives delivered the news during a day spent here with retail analysts, after walking them through the company's new P Fresh format.

“We are making changes in every corner of the store,” said Kathee Tesija, executive vp, merchandising. Home, she added, is “key to our brand and our profitability. Three-quarters of our guests think of Target first for home.”

The changes will include lower fixtures, more signage explaining product attributes, improving assortments, better defining the look of each brand and new designer partnerships.

To that end, Tesija ran through a list of short-term designer launches for spring:

Liberty of London in home and apparel, a 9-week program with more than 300 skus launching in March;Jean Paul Gautier in apparel, a 5-week program beginning in March;Zac Posen in apparel, a 9-week program beginning in March;Cynthia Vincent in footwear, a 5-week program beginning in April;Eugenia Kim in hats, a 9-week program beginning April.

The P Fresh format, which incorporates produce and other fresh food items into store, will explode the number of food sides from 34 to 55. Tests of the format in the Philadelphia market yielded a 6% to 9% jump in sales, according to Gregg Steinhafel, chairman, president and ceo. Doug Scovanner, evp/cfo, said the changes are expected to boost the gross margin rate at remodeled stores by 18%. The new format is also expected to boost the after-tax return on capital 10% to 14%, he said.

“Nothing we have ever done has resulted in [that kind of] lift to sales and transactions,” said Scovanner.

This year, Target will spend about $1 billion to revamp 340 existing stores, an annual pace Scovanner characterized as being at the limit of what is realistically possible. The first full remodels incorporating all of the new initiatives will be completed in April.

Michael Francis, executive vp and chief marketing officer, said the recession forced Target to re-examine every facet of its marketing approach. Research found the Target customer is “a mom who is a savvy, discerning household shopper. If all she cares about is price, she will shop at [Walmart].” However, the more complex the purchasing decision, the more likely she is to shop Target, he said.

In the next three to five years, Target plans to open stores in Canada, Mexico or Latin America. In addition, it will test a smaller store format in dense U.S. urban markets.

Next year, Target will unveil an enhanced e-commerce site. Among last year's digital introductions, the retailer created a mobile phone app for gift shopping, mobile phone gift cards, mobile phone coupons and shoppable online videos at www.target.com that allowed consumers to purchase items shown in the clip with a click of the mouse.

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