Target Curbs New Store Expansion - WSJ

Target Curbs New Store Expansion - WSJ
Discount Chain Shifts Tack, Will Remodel More Outlets to Emphasize Groceries


Target Corp. is slamming the brakes on store expansion and will pour $1 billion this year into remodeling its existing shops to accelerate a push into groceries.

The discount-store chain on Thursday said it will open fewer than 10 new stores in 2010, down from about 60 last year and an average of a 100 a year for the past several years. It has struggled in the last two years as consumers shied away from buying all but necessities.

Executives expect little relief. "Consumers are still buying with caution and shopping closer to the moment of need," said Chief Executive Gregg Steinhafel.

Best known for affordable and fashionable apparel and home furnishings created by big-name designers, the chain more recently has emphasized low prices on household basics and experimented with adding more food, including fresh produce, to its discount stores to entice customers in the door.

The Minneapolis-based retailer, in a meeting Thursday with analysts in Philadelphia, outlined major initiatives for the next five to 10 years that include opening stores abroad for the first time and testing smaller stores for urban areas.

During most of the recession, Target's sales at stores open at least a year—a key measure of retail health—fell. Its profits declined for eight quarters, a streak that halted in its fiscal third quarter ended Oct. 31. After posting higher-than-expected December same-store sales of 1.8%, the company said it expects fourth-quarter earnings to "meet or exceed'' analyst estimates of $1.11 a share. It plans to release results Feb. 23.

The company plans to remodel 340 stores this year, adding expanded food areas that have boosted growth 6% in previously remodeled stores.

Target also laid out other changes, including remodeling shoe departments and adding new fixtures in the video game and home goods area.

Wall Street analysts have expressed concern that Target, in its recent move to emphasize value, has been losing some of the distinctive features that set it apart from discount rival Wal-Mart Stores Inc., which posted strong sales gains through much of the recession.

The exact number and pace of new store openings beyond this year will depend on factors such as the state of the economy, as well as internal operational performance, it said. While the company is slowing store growth in the near term, it is not forsaking U.S. expansion altogether. Mr. Steinhafel said the company still expects to eventually open as many as 3,000 more stores in the U.S. It had 1,743 stores open as of Oct. 31.

Target said it plans to test small urban store concepts that would range from 60,000 to 100,000 square feet and feature high volume products. The company has said it expects 2010 capital expenditures of about $2.5 billion, up from about $1.8 billion. Wal-Mart also has expressed interest in opening smaller stores in urban areas.

Target said its international push would most likely be in Canada, Mexico or Latin America but not for at least another three years. Shares of Target fell 1%, or 50 cents, to $50.22 in 4 p.m. composite trading on the New York Stock Exchange. The stock rose by about 40% in 2009 and has continued to climb since the start of the year.

Write to Ann Zimmerman at ann.zimmerman@wsj.com