When was the last time you pronounced Target with a French accent?
The retailer was struggling with waning sales and traffic even before the December, 2013, data breach that affected 40 million customers. Tar-jhay had gotten stale, as a focus on a failing foray into Canada and lack of willingness to take risks with product in the United States took their toll.
Chief executive Brian Cornell has taken aim at those issues, closing the Canadian operation and revamping the home and baby sections of the stores. Target.com Monday announced free shipping on orders over $25, trying to juice the online business. And the retailer, which will report earnings on Wednesday, has tinkered with different store formats to reach urban consumers.
Now, Target Corp. is trying out its smallest format yet. Target Express, a pharmacy-sized 20,000-square-foot store, opened last July near the University of Minnesota in Minneapolis. The concept wasn't Mr. Cornell's brainchild – he arrived in August – but Target is opening eight additional versions of the stores this year in such locations as the San Francisco Bay Area and Washington. They join eight CityTargets, 80,000- to 160,000-square-feet stores in urban areas, which have done little to help the overall business.
Fewer people may be shopping at Target; comparable sales fell 0.4 per cent last year and traffic dropped 2.7 per cent. But Target's brand still scores well among women among the ages of 25 to 44, says Scott Mushkin, an analyst at Wolfe Research. Add a kid or two, and it scores even higher. But a lot of those ladies are living much farther than a minivan's ride away from a Target. They're in cities.
Target Express isn't just a shrunken superstore, nor is it an alternative to Walgreens. At the first test location, there's lots of U of M merch greeting shoppers when they walk in the door. Close by are basic T-shirts and sweats, opposite mobile phones and tablets with a dedicated staffer. The store shares real estate with student housing, and athletes want protein, so there's a larger raw-meat section than you might expect.
The most productive area in the store is trail mix, says David Best, Target's vice-president of new formats. An entire aisle is devoted to the stuff, which has the added benefit of being from Target brand Archer Farms and carrying higher margins.
Target Express may be great for students who need a last-minute spatula to flip their postworkout burgers, but how much does it do for Target's business? Most analysts answer: It doesn't hurt and indeed may be necessary for Target to find growth by getting closer to additional potential customers.
There are challenges in opening smaller, urban stores.
Mr. Mushkin of Wolfe Research points out that labour and real estate tend to be more expensive. The stores face no lack of competitors – drugstores, dollar stores, and convenience stores, although most aren't selling Beats headphones or towels. There have been both winning and losing small-format stories, from Tesco's abandoned strategy in the U.S. on the smaller end to Wal-Mart's Neighborhood Market. The size of a typical grocery store, the Market format's comparable sales last quarter rose 7.7 per cent, compared with 1.5-per-cent growth for the U.S. over all.
Whether sales at Target Express grow that quickly, the company still has to fix its core business at the big boxes and try to recapture some of the old Tar-jhay magic. Analysts are forecasting that net income in the fourth quarter rose 8 per cent on a 1-per-cent increase in sales. It'll take more than Target Express to boost those numbers.