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Target’s Latest Mantra: Apparel Is OK, But Food’s Even Better

Target Corp. is cutting back on space for apparel, hoping to drive more traffic into its discount stores with additional food offerings.

Target is hoping to offset declines in space allocated by reexamining rack density and fixtures, trying to come up with ways to deliver the same product content, look and impact in its apparel department.

Net income for the first quarter inched up 1.2 percent to $349 million from $345 million a year ago. Earnings per share for both periods tallied 38 cents. Total revenues for the three months ended May 3 advanced 7.6 percent to $10.32 billion from $9.59 billion a year ago. Comparable-store sales at the firm dipped 0.1 percent.

At the flagship discount division, pretax segment profit picked up 8.3 percent to $734 million from $678 million a year ago. Sales increased 9.8 percent to $8.82 billion from $8.03 billion a year ago, on a 1.1 percent comp increase. SuperTarget’s comps were more or less in line with the performance of the discount stores.

Lazard Frères & Co. analyst Todd Slater noted: “There’s an ongoing realization that food drives traffic and that we’re in a weak apparel cycle. Apparel is not as important a category in the current consumer cycle. Apparel is a deemphasized priority for consumers and retailers that have the flexibility to make these changes are reflecting that reality.”

Target’s belt tightening comes at a time when the firm’s chief competitor, Wal-Mart, is beefing up its apparel business, though both firms have had less-than-robust apparel sales recently.

Wal-Mart has been making moves to declutter its apparel space, incorporating touches like larger, simpler signs and standardized fixtures, in addition to building up its George label and adding Levi Strauss & Co.’s Signature for back-to-school.

Still, Slater said, “Target runs circles around Wal-Mart in apparel, on average. If anything, Wal-Mart is overassorted and overinventoried in apparel right now and is in a defensive, liquidating strategy.”

Davenport & Co. analyst David Campbell added, “Wal-Mart has a much bigger allocation to food, so Target is just evening the differential a little bit.”

He noted that the Target discount stores still won’t offer fresh food items such as meats, vegetables and fruits, which SuperTargets stock. “They are trying to get more traffic, hoping that people will come in to buy some and go buy some apparel or something like that.”
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