Target hangs tough on promotions, inventory
Home Accents Today Staff -- Home Accents Today, November 17, 2008
Minneapolis – In light of the highly promotional and competitive retail holiday period, Target Corp. is fiercely competing against Wal-Mart and Costco – who Target, along with itself, predicted to be the three “big winners” this season – on price and selection.
During the 1,684-unit discount department store chain’s third quarter earnings call today, Kathryn Tesija, evp merchandising, said the retailer is “carefully managing our merchandise inventory to simultaneously drive sales, reduce markdown risk and maintain reliable in-stocks for our guests.”
She noted that heightened consumer caution on spending is impacting the home department.
“We’ve seen people trading steak for chicken, people not buying all pieces of the bed but buying parts of it, maybe the comforter vs. the duvet and all the accessories that go with it,” said Tesija said.
Douglas Scovanner, evp and cfo, drew a stark contrast between the food, health and beauty segment at Target – which grew around the 10% range in the quarter – and the home and apparel segment, which sank in the low- to mid-single digits.
Still, Scovanner said, “As bad as that sounds, that is a pace that is considerably better than the U.S. market as we see estimates for the U.S. market, and so we continue to gain market share in those categories as well…and if you add together food, health and beauty in our case, in the aggregate, those categories remain smaller than the aggregate of apparel and home products. That is why the algebra works against us in reporting sales in the current environment.”
Third-quarter net profit of $369 million at Target was down 23.8% from $483 million in the same quarter one year ago. Earnings per share of 49 cents were down 13.8% from 56 cents.
Year-to-date earnings fell 11.9% to $1.6 billion, with EPS down 2.6% to $2.06.
Quarterly retail sales rose 1.7% to $14.6 billion, with comps down 3.3%. Nine-months sales of $43.9 billion were up 4.1%, while year-to-date comps were off 1.5%.
Commenting on the price wars, Gregg Steinhafel, president and ceo, noted, “Our approach typically has been and will continue to be that we will meet Wal-Mart on all like and identical items in local markets. From a promotional pricing standpoint we have taken a very aggressive point of view this year. We expect to be price leaders on selected items in our circular – not unlike we’ve down in past. But given the current environment, we will be even sharper than have been in prior years.
“Our sales shortfall is very much due to the traffic trends, and the transaction amount is slightly higher than last year, due to a slightly better mix but slightly fewer items per basket,” he said.
Steinhafel said Target expects to gain market share in the fourth quarter by “investing more of our markdowns into promotional pricing, and we look to offset that in other ways – either by reducing the number of items, or other ways within our P&L, so that markdown investment is really net neutral.”
By being in the narrow company of Wal-Mart and Costco this season, Target is further positioning itself for market share gains as “some of our other retail competitors may not emerge intact from the current economic turmoil,’ Steinhafel said, later adding, “We believe that a smaller competitive set will be to our benefit when the economy improves.”