Target Says ‘Small is Beautiful’

Target Corporation (TGT - Analyst Report), in order to tap the urban markets where real estate remains a constraint, plans to introduce smaller-format stores similar to that of its biggest rival Wal-Mart Stores Inc. (WMT - Analyst Report). The company informed that the new stores will vary in size from 60,000 to 100,000 square feet compared to its typical format of 125,000 to 180,000 square feet.
 
The operator of general merchandise and food discount stores in the United States, Target, used to concentrate on the suitability of its large format stores for a particular location, which lowers its accessibility to the country’s thickly populated urban regions and space-crunched cities.
 
However, with the changing business scenario and rising competition, Target felt the need to have stores of various sizes and formats to align with the targeted area. We believe that the approach will help the company to augment its sales. Target, will unveil its first smaller format store of about 90,000 square feet in Seattle in 2012, with plans of opening similar format stores in 10 U.S. cities, including Chicago, Los Angeles, San Francisco, Boston, Baltimore and Miami.
 
Moreover, by the end of 2011, Target plans to introduce ‘P-fresh’ in-store food and grocery sections in approximately 850 discount stores. By the end of this month, the company would have ‘P-fresh' sections in 462 discount stores, with the remaining 400 stores targeted for addition within the period of October 2010 to 2011-end. The company expects ‘P-fresh’ to boost 2011 comparable-store sales by 1% to 2%. The new smaller urban format stores will also carry a ‘P-fresh' section.
 
Target’s efficient marketing, multi-channel strategy, product innovation, compelling pricing, and new merchandise assortments should help drive comparable-store sales and operating margins in the long-term. We expect the company to gain market share and believe that more focus on consumable items should boost sales and earnings in a sluggish consumer environment.
 
Currently, we have a Neutral rating on the stock. Moreover, the Zacks #3 Rank, which translates into a short-term Hold rating, correlates with our long-term recommendation.
 

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