Target Aims for Smaller Stores, International Expansion

February 19, 2010
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Target Corp., the second-largest U.S. discount chain, plans to expand outside the United States and test smaller-format stores over the next few years to spur growth. Target will most likely open its first international stores in Canada, Mexico, or Latin America no earlier than 2013.

The Minneapolis-based retailer will spend about $1 billion to renovate 340 stores this year, expanding grocery sections to prompt more frequent visits. However, it also plans to slow the pace of store openings to fewer than 10.

In October, the company added 26 locations, including five full-grocery SuperTarget stores. But sales at stores that have been open for at least a year--which is considered an important gauge of retail performance--have dropped for seven straight quarters.

Portfolio managers at Rochdale Investment Management LLC in New York, whose $2.5 billion in assets include shares of Target and Wal-Mart Stores Inc., predict that slower new-store growth will boost comparable-store sales--a driver of stock-price growth.

Target’s popularity in cities encouraged the test of smaller formats with adjusted merchandise in some major city locations, such as the Atlantic Terminal store in Brooklyn, N.Y., to ensure that busy stores are well-stocked, a process that company officials hope will help it prepare for smaller formats.

While smaller-format stores will bring add-on business, Rochdale’s portfolio managers fear that international growth--with the exception of Canada--could be more perilous.