Target Seeks Better Home Mix, Presentation
February 20, 2006,
Minneapolis —Target Stores admitted to feeling some price resistance in its home textiles department during the fourth quarter, a problem company execs partly ascribe to packaging. During its earnings call last week, Target president Gregg Steinhafel said Target has “periodically” felt price resistance in this area, because the customer “can’t touch or feel or see the product as well as she can when it’s out of package.”
By contrast, Steinhafel said the flat panel television the store featured for the Super Bowl “did exceptionally well. We saw absolutely no price resistance whatsoever there.”
While price resistance was not an issue for the seasonal, ethnic-style-driven Global Bazaar — which included furniture pieces in the $300 to $400 range that sold well — this second year for the program has been somewhat disappointing.
“It is not meeting our planned projections for this year,” Steinhafel said. This comes in light of the retailer’s “fairly modest expectations” to increase sell-through from the first Global Bazaar marketing and merchandising run a year ago. The second edition featured an upgraded assortment that had been slightly edited down in SKU count from the previous year.
Part of Target Stores’ goal for 2006 includes trying to get its home business “back on track” after soft results over the second half of 2005. In progress are several initiatives, including “a lot of refinement of presentation and content, and good-better-best rebalancing that we’re doing,” Steinhafel said.
“We’re slightly disappointed in that our regular priced business has not been stronger than it is, but overall it has been still very, very solid,” he said. “With product, higher quality goods and value prices continue to sell in our home assortment.”
He added that scale is important: “Bigger pieces are doing better. As we have reinvented and re-categorized and re-merchandised our existing assortment in home, we continue to see that fewer, better items within those assortments continue to sell well. Again, it’s a learning process. We are going to continue to refine and tweak it — and not everything we do is going to work exceptionally well. Overall, we’re pretty pleased with the performance.”
Within domestics specifically, he remarked, “We are pretty confident that when we transition in about 10 days that that business will be back on track.”
Enhancing food offerings is part of the equation, he added, since the category helps drive higher traffic to the stores.
Target has experienced strength in its furniture business but less movement in its decorative accessories and lightings assortments. “As we have re-merchandised some of these categories, we’re starting to see some strength in those businesses,” Steinhafel said, “so as we transition those categories throughout the year we are very confident those businesses will start to run same-store increases.”
Other soon-to-come enhancements in home include the roll-out nationwide of the Smith & Hawken garden accessories and décor items to compliment Target’s indoor home assortment. The collection is currently at Target’s garden centers, and next month it will be available to all stores.
Other category projects for 2006 include a “significant reinvention” of the Target intimate apparel and bath-and-body assortments for men and women, a new sampling of European-made toys, and significant improvements to its apparel programs in terms of presentation and fixturing. “We want to more prominently display designer brands to make it easier and faster for guests to make their clothing selections,” he said.
And importantly, in the food category, Target said it continues to enhance its assortments within its general merchandise stores “to provide greater depth of convenience and drive more frequent guest visits.”
At SuperTarget stores, the company plans to add more self-service deli items and offerings including soups, side salads and value added meats and desserts, “that make meal preparation fast and easy,” he said.
In real estate, the company plans in 2006 to open approximately 110 new units and three new distribution centers to support the growth. The first cycle of new store openings is slated for March, with 24 general merchandise stores and one Super Target to debut.
Target reported fourth quarter earnings of $939 million, up 13.8% from a year ago, and annual 2005 earnings of $2.4 billion, up 27.7% from 2004. Retail sales were up 11.4% in the quarter, to $14.8 billion, and up 12.2% for the year, to $51.3 billion.
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