Target aims for renovation rather than growth

Target, the U.S. second-largest discounter after Wal-Mart, is navigating turbulent economic times by polishing old stores rather than opening many new ones, opening smaller urban stores and looking outside the U.S. for growth.

The new store format will begin rolling out in April and feature spruced up home furnishing offerings, larger grocery sections, better video game displays and shelf lighting in the beauty section.

Company officials told investors at Target Corp.'s analyst meeting in Philadelphia Thursday, which was Webcast, that it's changing every part of its stores to increase sales and profit and grab market share from rivals.

They said they will spend $1 billion renovating 340 U.S. stores while opening fewer than 10 new ones in 2010. That's many fewer than the 58 they opened in the fiscal year ending Jan. 31 and the 91 in fiscal 2008.

Key in the renovations will be the enhanced grocery sections, which the chain hopes will bring shoppers in more often. Target introduced perishable items like bananas and lettuce in about 100 of its general merchandise stores last year.

Chairman, president and CEO Gregg Steinhafel sees the economy stabilizing but told investors "consumers are still buying with caution and considering each purchase."

Given that tough environment, officials stressed they're being prudent about capital spending.

They said it costs $1 million to add the new PFresh food format to an existing general-merchandise store. That compares with $10 million to convert such a store to a Super Target.

And stores with the new food format that have been open at least a year have seen an immediate 6 percent increase in traffic and sales. The PFresh concept combines fresh food like produce and meat with grocery items.

Target plans to redo 300 to 400 stores per year in the U.S. The company operates more than 1,700 stores, most of them general merchandise stores and all in the U.S., including about 250 Super Targets.

Target, based in Minneapolis, said that it plans to open stores in Canada, Mexico and Latin America, but not for at least three to five years.

As for the smaller stores coming to urban markets, Target plans to test the concept in the next few years with stores of 60,000 to 100,000 square feet, compared with the current average of 125,000 square feet.

Target's plans are similar to Wal-Mart's. Wal-Mart told investors in October that it would expand faster overseas, particularly in emerging markets like China and Brazil, than in the U.S. In the U.S., Wal-Mart is focusing on renovating existing stores and building fewer and smaller but more efficient stores. Wal-Mart aims to use the smaller formats to further penetrate urban markets.