Dayton-Hudson Changes Slant for Discount Centers : Target Stores Finally Hit Mark in Southland
When Dayton-Hudson introduced its Target discount stores to Southern California in 1983, it set lofty ambitions for the chain. But it is only now, two years later, that the stores are finally operating on target.
Bruce G. Allbright, Target’s chairman and chief executive, says that, after a “disappointing” start-up, the chain’s 27 stores in Los Angeles, Orange, San Bernardino, Riverside, Ventura and San Diego counties are meeting and exceeding the first-year annual goal of $130 in sales per square foot.
The improvement is important for Minneapolis-based Target because California is a major focus of its expansion plans. Last month, Target opened stores in Santa Fe Springs and La Verne and plans to open three more--in Orange, Cypress and Canoga Park--in late October.
Those five are among 13 new stores planned this year nationwide. Over the next five years, the company plans to open an additional 72 stores nationwide--with 20 to 25 of them in California.
Along with Hayward, Calif.-based Mervyn’s, Target is crucial to Dayton-Hudson’s strategic shift away from its traditional department store base.
In 1984, Target, which calls itself an “upscale” discount chain, accounted for 44.3% of the Minneapolis-based retailer’s $3.5 billion in sales. It accounted for 37.7% of the parent’s total operating profit of $624.4 million, up from 27% in 1979. Mervyn’s, which accounted for 26% of operating profits in 1979, now contributes 35.7% of Dayton-Hudson’s operating profits and 26.7% of its total revenue.
Target moved into California with what it believed was a unique format. “I believe there isn’t anyone else like us in the upscale discount market,” Allbright said during a recent interview in Los Angeles. The closest, he said, is Gemco, which, unlike Target, sells food in addition to general merchandise.
However, Target underestimated the price competitiveness of the Southern California market, Allbright said, and encountered a number of problems in meeting the initial sales goal, which he described as “the highest for any new market.”
Target’s so-called upscale discount merchandising format takes the high volume and low margin pricing of discounters and presents it in a department store-like atmosphere. A key to cutting costs is the centralized planning in Minneapolis of store layouts and product mixes.
When Target moved into California, however, it found it had to take into account major regional differences. Allbright said it took time for Target to understand that the life style and buying patterns in California dictate a different kind of merchandising. There is a different cycle to the Southern California fashion market because shoppers pick up new fashion trends well ahead of other parts of the country, he noted. In addition, the chain had underestimated the complexity of the local advertising market and had to work at making its weekly newspaper inserts more effective.
As a result of these factors, inventories got out of control. Moreover, Target suffered from adverse publicity about an anti-Target campaign in San Diego by former union employees of Fedmart. The employees contended that Target, which moved into some sites formerly occupied by Fedmart, had an obligation to hire the former Fedmart employees.
The union filed a complaint with the National Labor Relations Board, but it was subsequently dismissed on grounds that there was no basis for the allegations.
During their first year, Target’s Los Angeles-area stores initially operated at 7% below the annual goal of $130 in sales per square foot. Stores in San Diego also performed below expectations, which were set somewhat lower.
Having recognized the problems, Allbright says Target has instituted solutions. For example, Target begins its back-to-school sales push in Southern California about two weeks later than in other parts of the country.
In addition, Target now departs somewhat from preprogrammed nationwide specials and features different items in California that reflect regional preferences for such items as lawn and garden care goods.
The chain also has instituted an “everyday low price” format nationally on certain major items such as videocassette recorders and other electronic goods, tires and furniture. And Allbright says Target has fine-tuned its advertising by identifying publications that reach potential customers in areas near its stores.
Target has closed three stores--in San Diego, San Bernardino and Long Beach--that “over time didn’t meet our expectations,” Allbright says. He added that Target’s sales are expected to hit about $4 billion this year, up from $3.6 billion in 1984.
Allbright says the stores’ sales are now on track. In the fourth quarter of 1984, which ended Feb. 2, sales at California stores open 12 months or longer rose 15% from a year ago, compared to 10% for the chain overall.
So far this year, however, Allbright says sales of Target’s California stores have been running at 30% above last year’s levels. In the first quarter, Target’s sales overall were up 19% from a year ago and 14% on a store-for-store basis.
Allbright says Target needs to establish more stores in Southern California. “This is our highest priority, to get up to critical mass--a number that gives us a presence in the market,” he said.
The five new Southern California stores represent total capital expenditures of $50 million, about half of Target’s capital expenditures for this year. Target, which is receiving $1 billion of Dayton-Hudson’s $3.2 billion in capital expeditures over the next five years, plans to open 20 to 25 more stores in Los Angeles, Orange and San Bernardino counties. Expansion plans are being concentrated in Southern California, but Allbright says the chain is studying the San Joaquin Valley as well.
