Target Corp. thinks its smaller format CityTargets can get even smaller.
During a recent conference call with analysts to discuss second quarter earnings, CEO Gregg Steinhafel said the company was looking at ways to reduce the size of the urban centric store.
“We are building the capability to operate stores in smaller spaces, particularly in urban markets,” Steinhafel said. “We are analyzing results in our [existing CityTargets] to understand where in the stores we have the ability to reduce space even more allowing us to further shrink the size of this store format.”
Launched last year in cities like Chicago, San Francisco, and Seattle, CityTargets are typically 80,000 to 100,000 square feet compared to the regular big boxes, which typically 150,000 square feet or larger.
For Target, the obvious advantage of the format is that you can find more places to stick one in a dense urban core.
Target was pretty lucky to find the urban real estate to accommodate the seven CityTargets it currently operates, said Amy Koo, an analyst with Kantar Retail consulting firm in Boston.
“It’s really hard to find these spaces,” she said.
Going smaller will presumably give Target more options as it scouts future locations for the format.
Thinking even further ahead, Target’s experimentation might allow it to figure out ways to shrink the size of its regular big box stores to make them more productive, Koo said.
With U.S. sales weak, big boxes like Best Buy and Sears have adopted strategies to make the most of its space. Best Buy has partnered with vendors like Microsoft and Samsung to create store-within-a-store concepts while Sears has leased excess space to outside companies.
Big boxes over the next decade will realize that they don’t need nearly all of the space they currently own or lease, Koo said.
“People just don’t go to the general box to stock up anymore,” she said.
Target Corp. CEO Gregg Steinhafel acknowledges that the retailer suffers from a “price perception” problem in Canada. Consumers readily buy Target’s “discretionary” merchandise like clothes and home.
But when it comes to “non discretionary” items – such as food and healthcare – shoppers assume Target’s prices are much higher than that of Wal-Mart or Loblaws.
For that reason, Target’s Canadian sales have fallen below the company’s original projections. Still, the company’s price perception woes are not exclusive to Canadians.
Over the past three years, Target has struggled with weak U.S. sales during the crucial holiday shopping period. Part of Target’s problem is that the company has not cut prices as aggressively as its competitors, analysts say. Holiday is largely about discounting, but Target has refused to chase what it calls “temporary market share” at the expense of profit margins.
In any case, Target’s prices are probably not materially more expensive than rivals. The company already offers 5 percent off each individual purchase with a REDcard. And Target recently decided to match online and in-store prices of competitors like Wal-Mart and Best Buy, and offer free shipping.
“There isn’t going to be a meaningful change in our [holiday] strategy, because day-in and day ... our prices are competitive,” Steinhafel told analysts during a recent conference call. “We have a very strong value proposition and our circular pricing is even more aggressive than that and we take market leading positions.”
But perception doesn’t always match reality. Target’s prices may be competitive, but Americans looking for deals will likely assume Wal-Mart and Amazon have lower prices, analysts say.
“For the last three holiday seasons, [Target] has performed poorly,” Daniel Binder, a retail analyst with Jefferies & Co., wrote in a recent research note. “This appears to reflect its less aggressive pricing message even as its everyday low prices competitive.”
“We do remain concerned that its less aggressive promotional posture during the biggest quarter may contribute to a loss of mind share with its core customers,” Binder wrote.
In other words, for all of its marketing prowess, Target doesn’t effectively communicate to consumers its holiday prices are just as good if not better than everyone else’s.
To address soft sales in Canada, Steinhafel promised to take quick action to educate consumers.
“We’re going to make sure that our prices get more notice than they have been up to this point,” Steinhafel said. “Part of that was a conscious plan on our part to make sure that we really won in home and apparel and we feel real good about where we’re in those two businesses today, so we’re proud of that fact.”
“Now we have to just turn on the gas a little bit on the other side of the equation to make sure that we’re getting the Canadian guest to understand what great values we offer,” he said.
Steinhafel could easily apply that same logic to American consumers come November and December.
In Chicago, where baseball loyalties are divided between the Cubs (North Side) and the White Sox (South Side), Target Corp. has decidedly pledged its allegiance to the Cubs.
Or has it?
Target enjoys a multi-year marketing deal with the Cubs to support its new CityTarget store, which includes a noticeable bull’s eye logo on the famed ivy and brick outfield in Wrigley Field.
Only one problem: the CityTarget store is technically located on the South Side.
Last year, the Minneapolis-based retailer opened the CityTarget store to much fanfare on State and Madison streets. Designed by famed architect Louis Sullivan and built in 1899, the building, which is a U.S. historic landmark, was home to the Schlesinger and Mayer department store and later Carson Pirie Scott.
But a decision by Chicago’s City Council in 1908 declared Madison street as the official dividing line between the north and south sides of the city. The store sits on the south side of Madison. If the store had opened just 100 feet across the street, Target would have safely been in Cubs territory.
Not that it really matters since there are plenty of Cubs and White Sox fans who live and work on each other’s turf. It's not as if Target would pick a building solely on the basis of baseball loyalties. And some people believe the real North/South divide belongs someplace else.
Still, Target has tried hard to position CityTarget as neighborhood stores with strong ties to the community. And a few people did notice the contradiction, said Brian Kelly, a Chicago-based retail consultant.
Right now, the CityTarget sells more Cubs merchandise than White Sox products. In any case, both teams have losing records and are unlikely to make the playoffs.
In recent months, though, the Cubs and White Sox have ceded considerable shelf space to another Chicago team: the Blackhawks of the National Hockey League, which recently won the Stanley Cup Championship.
So it seems in Chicago retail, geographic loyalties don’t matter so much as winning pedigrees.
Foosball tables and bean bag chairs are so Web 1.0. If you want real street cred as a tech startup or innovation powerhouse today, then you must get a British red telephone booth.
Yes, those fire truck-colored rectangle boxes with TELEPHONE scrawled across the top, right underneath a crown.
Normally, you would find the booths in Parliament Square on Great George Street in London, where tourists like this blogger (see above photo) snap endless photos of this British relic of yesteryear.
But lately, these boxes have been popping up in Silicon Valley or any corporate office that wishes to look high techy.
On a recent trip to San Francisco, where retailers like Target and Wal-Mart are trying to tap tech talent, this blogger first spotted the booth in the offices of Luvocracy, a social media/shopping startup founded by ex-Google executive Nathan Stoll and backed by venture capital heavyweight Kleiner Perkins Caufield & Byers.
Two days later, this blogger noticed not one, but two booths in the offices of Wal-Mart Labs in nearby San Bruno.
And this past week, on a visit to Target Plaza Commons on Nicollet Mall in Minneapolis, the blogger found….you guessed it….another red telephone box.
Point of Sale is not sure why tech companies have adopted the booth as its standard bearer. According to website the-telephone-box.co.uk, the General Post Office rolled out the first booth in 1921 while Sir Giles Gilbert Scott unveiled the booth’s most recognized design three years later.
It might seem odd that tech startups and retailers, who are trying to develop unique mobile technologies and smartphone apps, would gravitate to something as quaint as the telephone booth.
But as the website noted: "The telephone was a marvelous technical innovation, but for that reason was very expensive, so their use in the closing decades of the nineteenth century was limited to wealthy homeowners and businesses."
Ah. So a symbol of both innovation and exclusivity. That makes some sense.
But of course, nobody really gave that explanation.
Fiona Kirkpatrick, office manager for Luvocracy, said she found the booth on Craig’s List. Since the phone booth is obsolete, there are quite a few of them up for sale on the Internet, she said.
Since Luvocracy boasts an open office design, Kirkpatrick said she envisions employees using the booth to make real phone calls and to enjoy some privacy.
“Plus the booth looks very cool,” she said.
That’s probably as good of an answer as any. Like any fad, people like to copy what’s cool but never admit they are copying something to be cool.
How else can we explain why exposed brick, open worktables, bean bag chairs, foosball tables, pop culture quotes, whiteboards and markers have become mandatory for any startup office?
Ironic that in the quest to appear innovative, these offices all look the same.
Best Buy may be retreating a bit from the music business. But the Richfield-based consumer electronics retailer is still finding ways to stay in the game.
A recent innovative deal between Jay-Z and Samsung could wind up helping Best Buy. The rap/hip hop artist recently struck a deal with Samsung in which the Korean electronics maker purchased one million copies of Magna Carta for $5 million and distribute it free to owners of Galaxy S III, Galaxy S4 and Galaxy Note II devices via a special app three days before the album’s early July release date.
So if Jay-Z album give away leads to additional sales of Galaxy smartphones and tablets, Best Buy, which hosts 1,000 Samsung Experience shops in its stores, also benefits from those sales. That’s probably why you see Best Buy’s logo appear at the very end of commercials that promote the Jay-Z and Samsung partnership.
Under CEO Hubert Joly, Best Buy plans to reduce the amount of space it devotes to CDs and DVDs in favor of higher growth merchandise like appliances, mobile device, and store-within-a-store concepts like Samsung Experience.
Not only does Samsung lease the store space from Best Buy but the retailer also likely takes a cut of any sale the originates in the store-within-a-store.
In short, the deal allows Best Buy to continue to position itself as a music destination without having to get its hands dirty in the relative thankless task of directly selling music.
It’s just as well since Best Buy hasn’t had much luck with music in recent years. The retailer bought Napster for $121 million in 2008 only to sell it to Rhapsody three years later. Best Buy also tried to market itself as a seller of musical instruments. But it seems like the company is phasing out that business, according to the redesigned store space Joly showed to investors.
Interestingly enough, Samsung may have borrowed a page out of Best Buy’s playbook a few years ago. In 2008, Best Buy reportedly paid $14 million to exclusively sell 1.2 million copies of Guns ‘N Roses’ “Chinese Democracy” but actually budged over 600,000 units.
Samsung probably hopes it will get more bang out of its $5 million investment with Jay-Z.
Instead of selling music through the usual channels like iTunes, Jay-Z has chosen a maker of electronics devices to distribute the album. At $5 a pop, Jay-Z probably earned a much higher royalty for his music than any deal he could strike with iTunes.
Unlike Best Buy, Target Corp. continues to invest in its music section.
Earlier this year, Justin Timberlake partnered with Target to exclusively release an extended version of 20/20 in stores, backed by a well-received commercial that aired immediately after JT’s performance during the Grammy Awards.
Despite booming digital sales of music and movies, the Minneapolis-based retailer continues to stock its shelves with the old fashioned CDs and DVDs, hoping its exclusive partnerships with Taylor Swift, Beyonce, and JT can still drive traffic to its stores.
Since first conceiving of Cartwheel last year, Target Corp. has adopted a cautious, almost tentative, approach to its digital coupon program. For one thing, Cartwheel represents the first major digital effort created entirely by Target staff. Plus, the process is relatively complex.
After a month into its Beta launch, Target has released some early numbers: more than 200,000 users have redeemed more than $275,000 in digital coupons. Among the products consumers mostly bought were Fresh Berries, Fruittare Popsicles, Dove Hair Care, and Market Pantry milk.
Users with Facebook accounts log into a website, where they can select from a large variety of deals, like 5 percent off Diet Coke or 10 percent off bath towels. Shoppers then purchase the items at a store, where they can redeem their deals at checkout with their smartphones. Users can also earn extra perks by recommending deals to their friends through Facebook.
When Target first previewed Cartwheel to this blogger in May, officials made clear that the program was a work in progress and they were looking for customer feed back. The retailer is especially interested in how to adjust their inventory levels with vendors to entice people with the right deals.
At first glance, 200,000 users doesn’t seem like a whole lot for a retailer which alone employs 361,000 employees. However, aside from using the news media to promote Carthwheel’s Beta launch, Target has not thrown the full weight of its marketing machine into the effort.
“200,000 sounds about right,” said Kim Garretson, a founding partner of digital marketing agency Ovative/Group in Minneapolis.
The number will likely accelerate over the next few months as the program goes viral through social media channels like Facebook.
To move along the process, Target also said this week launched Cartwheel apps for both iOs and Android-based smartphones.
The company would not disclose how many users it eventually wants to sign up. But Target is right to go it slow, said Amy Koo, an analyst with Kantar Retail consulting firm in Boston. For one thing, Cartwheel requires consumers to go through a lot of steps, she said.
“It’s not a frictionless process,” Koo said.
Target certainly knows the value of simplicity. Chief Marketing Officer Jeff Jones recently told this blogger that the failure of its holiday design partnership with Neiman Marcus—50 products from 24 designers sold at two retailers—was partially due to the complicated nature of the collaboration.
“I think simple is better,” Jones said. “Simple to understand. Simple to execute.”
Take Target’s 5 percent REDcard program. Analysts say the program works because it’s simple to understand, five percent off total purchases every time a shoppers uses the REDcard.
Done. Finito. Case closed.
With Cartwheel, Target is asking consumers to devote a lot of time and energy into a program so they can redeem relatively modest deals, Koo said.
Cartwheel could also contribute to a price perception problem with Wal-Mart, Koo said. By offering coupons on certain merchandise, Target is in fact admitting those products are more expensive at Target compared to Wal-Mart’s Every Day Low Prices.
Whether that’s true or not is hardly relevant. Once consumers perceive something about prices, it’s awfully hard to change their minds Cartwheel or no Cartwheel, she said.