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Target leverages brand in expansion strategy

To weather last year's tough economic climate, Target Corp. leveraged the strength of its Target brand and will continue to do so, primarily by expanding into newer markets and filling in existing ones.

"Though we underperformed our long-term growth objectives in 2000, and the economic environment in 2001 remains uncertain, we are confident in our underlying strategy and growth potential," said Bob Ulrich, chairman and ceo, in the annual report. "By leveraging the power of our Target brand, we believe that we can continue to deliver strong growth and financial success for many years to come."

The company, which began its fiscal year as the newly renamed Target Corp. from its previous nameplate Dayton Hudson Corp., continued to invest in new store growth for both its Target discount and SuperTarget formats.

The Target Stores division, the company's strongest area for growth, expanded its store base more than 9 percent last year, or nearly 10 million square feet, with 65 new discount and supercenter locations. New locations opened in both newer markets, such as Boston, New York, Philadelphia and Hartford, CT, as well as more mature markets, like Phoenix, Indianapolis, Denver and Atlanta. Target will also bow in entirely new markets, such as the planned fall 2001 entry into Portland, ME.

This "presents an important opportunity for us to serve more guests, gain market share, improve profitability and create shareholder wealth," said Ulrich in the annual report.

Going forward, the company hopes to add 10 percent more stores this year, including doubling the SuperTarget count with 30 or more locations. Fourteen new SuperTargets opened last year, accounting for about one-quarter of its net new space last year. "As evidenced by this rapid expansion," said Ulrich, "SuperTarget is expected to be a key contributor to our near-term and long-term growth."

This also gives Target the opportunity to replace older Target discount stores with the newer SuperTarget format, which is focused in existing markets with a strong Target presence, primarily in the Midwest and South. The company also partnered with E-Trade to provide access to integrated banking, brokerage and investment planning services to customers within SuperTarget.

Target has also become more flexible in its site selection and store design, further expanding the opportunities for growth. Earlier this year Target announced the purchase of 35 former Montgomery Wards stores, some of which were in premier markets, including California. The majority of those stores will open during 2002.

Target Stores also enhanced its domestics offerings with new name brands. Martex bedding and bath was introduced to the Target consumer last year, and earlier this year the Waverly collection debuted, and may expand with an additional bed and bath pattern next year.

Target Stores ended the fiscal year with 977 stores in 48 states, and had a comp-store sales increase of 3.4 percent. Revenues per square foot were $268 for Target, up from $264 the previous year.

Though Target's Mervyn's and department store division account for 20 percent or less of Target Corp's revenue, "we believe that their combined contribution to our overall strategy and financial performance remains important," said Ulrich. Earlier this year, Target announced that it is changing the names of its Dayton's and Hudson's stores to Marshall Field's, the more widely recognized brand of the three. The switch will begin this summer internally and will be completed early this fall. An online gift registry will also then be launched this year.

The Marshall Field's division of department stores had 64 stores, located in the upper Midwest. Its comp-store sales had a decrease of 4.0 percent, and revenues per square foot went down to $210 from $220 the year before.

Mervyn's underwent "significant improvement in profitability in 2000," Ulrich said, due to regaining its position of a destination for core merchandising basics and infusing more fashion into the assortment.

Mervyn's store count is currently at 266 locations. Its comp-store sales inched up 0.3 percent last year, and its revenues per square foot were $190, an increase of $1 from the previous year.

Last year also marked the debut of Target's e-tailing and direct marketing division, Target Direct. Target.com relaunched in the fall significantly expanding its online merchandise selection, as well as offering online bridal and baby registries, called Club Wedd and Lullaby Club, respectively. Target plans to increase guest visits and sales at the website by continuing to expand merchandise offerings and functionality, and it expects to triple traffic to the site this year.

Target is also currently testing an in-store kiosk in West Plano, TX, where customers can surf aol.com and target.com. No other kiosks are planned at the moment.

The company will also use the Internet to improve communications and facilitate commerce with its business partners. Last year, the company, along with 16 other retailers worldwide, founded the WorldWide Retail Exchange, a global B2b e-marketplace, to facilitate trading between retailers and thousands of vendor partners and suppliers.

In addition, the company expanded its offering of gift cards and began testing a Target Card with Visa capabilities in Phoenix, Denver and Atlanta.

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