Target Aims Smaller Format Stores – Analyst Blog

Target Corporation (TGT) similar to that of its biggest rival Wal-Mart Stores Inc. (WMT) plans to introduce a smaller store format of 60,000 to 100,000 square feet compared with its typical format of 125,000 to 180,000 square feet, to tap the urban markets, where real estate remains a constraint.

 

The operator of general merchandise and food discount stores in the United States, Target, will debut its first smaller format of about 90,000 square feet in Seattle in 2012, with plans to open similar format stores in 10 U.S. cities, including Chicago, Los Angeles, San Francisco, Boston, Baltimore and Miami.

 

Target used to focus on the suitability of its large store format for a particular location, which reduced access to the country’s densely populated urban regions and space-crunched cities. But with the changes in business environment and increasing competition, it felt the need to have stores of various sizes and formats to best fit the targeted area. The approach will help the company pump up its sales.

 

Target also plans to introduce ‘P-fresh’ in-store food and grocery sections in approximately 850 discount stores by the end of 2011. By the end of this month, the company would have ‘P-fresh’ sections in 450 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.

 

The Minneapolis-based retailer, Target, will also begin selling Apple Inc.‘s (AAPL) iPad touch-screen device across its 1,743 stores nationwide commencing October 3, 2010 to spur its holiday season sales.

 

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.