Target Stores

33 S. Sixth Street

P.O. Box 1392

Minneapolis, Minnesota 55440-1392

U.S.A.

(612) 304-6073

Fax: (612) 304-0730

Web site: http://www.targetstores.com

Division of Dayton Hudson Corporation

Incorporated: 1961

Employees: 166,000

Sales: $20.37 billion (1997)

SICs: 5331 Variety Stores

Target Stores, Inc. is a division of Dayton Hudson Corporation, and is the third of the “Big 3” in U.S. discount retailing, behind Wal-Mart and Kmart. Curiously enough, Target opened its first store the very same year as did Wal-Mart and Kmart, in 1962. Since that time, Target’s growth has been nothing short of meteoric. The company operates over 850 stores in 41 states, including 75 Target Greatlands, 14 SuperTargets, and 298 Targets with pharmacies. Part of the company’s success lies in its ability to combine bargain prices with fashionable, branded merchandise and excellent customer service. The company’s commitment to this is reflected in its motto: “Expect More. Pay Less.”

The Early Years

Dayton’s department stores began planning a Target discount chain in 1961 when it foresaw a rising public demand for lower-priced, mass merchandise available in a convenient, friendly environment. According to company literature, the Target name and red and white bull’s-eye logo were selected for their visual impact and the underlying message that the stores would be aimed at offering customers the best prices. When Target was incorporated in September 1961, there were a handful of high-volume, low-margin discount retailers doing business around the country; nonetheless, Target claimed to be the first to offer quality national brands in a comfortable, attractive setting. As Target expanded during the 1960s, consumer attitudes toward discount retailers changed dramatically, from mild disdain to enthusiastic acceptance.

The first Target store actually opened in 1962 in Roseville, Minnesota, a northern tier suburb of Minneapolis and St. Paul. The test store conformed to the specifications of later Target stores, which were generally sized between 80,000 and 135,000 square feet and emphasized wide aisles, well-marked displays, ample checkout lines, and a clean, inviting atmosphere. Plans for Target were still in an embryonic stage when the first store was opened; therefore, the management of Dayton’s consulted with the management of a fashionable, upscale department store chain in Georgia named Rich’s, which was planning a similar new discount retailing entry in its home market—Richway stores. According to a 1989 Target advertisement/retrospective, “the two teams shared ideas and strategies” and “did not see themselves as competitors, but as collaborators.” Central to the strategy of each parent company was locating its discount offspring in major markets near major thoroughfares. The Minnesota-Georgia planning sessions obviously rewarded Target during the short-term, but also in the long-term: later in 1989, when Target was prepared to enter the Southeast, the Richway chain proved an ideal acquisition candidate that facilitated a strong Target entry into the region.

By the end of Target’s introductory year, four stores had been opened. By 1966 the subsidiary had made its first foray outside of Minnesota with the opening of two stores in Denver, Colorado. Within the next four years, Target had 17 stores in four states. The company closed the decade with 40 percent average annual growth over four years and annual sales of $100 million.

Expansion in the 1970s

During the 1970s, Target matured not only in terms of size (80 stores in 11 states by 1979, with $1.12 billion in sales) but also in terms of technology (electronic cash registers for improved inventory control) and corporate identity (toy safety campaigns, shopping events for seniors and the disabled, and various outreach programs). The tone for Target’s aggressive expansion was set in 1971 when the subsidiary acquired a 16-store retail chain serving the markets of Colorado, Oklahoma, and Iowa. It was through such opportunistic purchases—as well as through the regular addition of new stores—that Target was able to become Dayton Hudson’s top revenue producer by 1975.

Unlike other discount and mass merchandisers, Target had a department store heritage instead of dimestore roots. This proved to be valuable in terms of its growth potential, allowing the store chain to negotiate deals with manufacturers that might have been difficult otherwise. For example, premier brand-name manufacturers were formerly accustomed to establishing exclusive relationships with department stores, and often avoided the distribution of their goods in mass merchandising channels. Target’s connection to Dayton’s, however—in addition to changing attitudes about discount retailing—helped fuel Target’s success.

Nevertheless, Target’s ascendancy was not without problems. In 1973 the chain had 46 stores and was facing two consecutive years of decreased earnings. New management, in the form of replacement President Stephen Pistner and Merchandising Executive Kenneth Macke (who eventually became president of Target and then chairman and CEO of Dayton Hudson, retiring in 1993), arrived and took stock. In a 1986 Star Tribune article, Macke commented, “Target had grown very fast and they’d forgotten a little about the most important person: the customer.”

In 1974, Target initiated a rapid turnaround that began with a one-year halt to new store additions. Other steps included the creation of a management team to review Target’s objectives; the creation of a quality assurance committee to review the manufacture and pricing of private-label products; the addition of new brand-name selections; the renovation of store interiors and displays; and the advent of color promotional inserts in Sunday newspapers. These steps were designed to demonstrate Target’s high reputation to its customers, as well as its commitment to good products at low prices.

The discount chain also implemented policies and events that demonstrated its commitment to the surrounding communities. For example, midway through the decade, Target began hosting special shopping events for senior citizens and people with disabilities. The store also initiated a toy safety campaign, and its employees began the practice of donating money to such causes as United Way (within a decade, Target team members reached a milestone by donating over $1 million in this fashion).

Revitalized, Target continued its transition from an expanding subsidiary to the central growth division of Dayton Hudson, a transformation that became especially overt between 1977 and 1982. At the beginning of this five-year period, Target’s operating profits represented just 26 percent of overall corporate profits; by 1982, department store profits had plunged from 58 percent to 25 percent, while Target earnings had risen to a solid 33 percent, approximately the same as the Mervyn’s chain (acquired by Dayton’s in 1978).

Acquisitions in the 1980s

Target launched into the 1980s with the acquisition of Ayr-Way Stores, a 40-outlet chain operating in Illinois, Ohio, Indiana, and Kentucky. Prior to the purchase, Target had operated stores in Illinois; the other three states were new territories for the company. Three years later the company acquired 33 Fed-Mart sites in southern California and Arizona.

According to Neal St. Anthony in the April 7, 1986 edition of the Minneapolis Star Tribune, analysts were particularly worried about Target’s acquisition of 28 closed FedMart stores in the highly competitive region of southern California. Some believed that to compete there, Target would have to follow other mass merchants and begin offering liquor and groceries as well as clothing and household items. In addition, FedMart employed union workers, Target did not. However, these and other obstacles were overcome, and California soon became the state in which Target had by far the most stores, the most retail square feet, and generated the most revenue.

In addition to catapulting Target firmly into the “Big Three,” the successful California expansion won the approval of Wall Street and kudos from a number of other sources. In 1984 the University of California’s School of Business Administration named Dayton Hudson Corporation, of which Target formed no small part, the “best managed company in the U.S.A.” Target closed the decade with several highlights, including a large expansion into the Southeast, recognition as the Discounter of the Year, and sponsorship of the International Trans-Antarctica Expedition. By 1989 the company operated 399 stores in 31 states and boasted annual sales of $7.52 billion.

New Growth in the 1990s

In 1990 Target opened a new prototype store in Apple Valley, Minnesota. Called Target Greatland, it was a megastore featuring wider aisles, color-coded signs and graphics, broader product offerings, and “Food Avenue” and “Guest Services” areas. The Greatland concept proved to be quite successful, and continued to be implemented throughout the 1990s, serving also as a guide for the approximately twice-per-decade remodeling of existing stores. During 1990 Target also unveiled a market strategy to introduce Target stores into smaller cities (exactly the opposite strategy of giant rival Wal-Mart), as well as total quality and micromarketing programs. This last was designed to capitalize on the unique needs and interests of different communities and regions, through merchandise reflecting, for example, the local climate or local sports teams.

Company Perspectives:

Ever since we opened our first store back in 1962, it’s been our goal to offer more fun, more style, and more value than anyone else. At Target, we really want you to “Expect More and Pay Less.” But there’s more to our success than low prices. We’re successful because great people work here. And because we ’re always improving the shopping experience, with stores like Target Greatland and SuperTarget.

In 1991 Bill Saporito, writing for Fortune, posed the question “Is Wal-Mart Unstoppable?” According to him, the stage for a three-way showdown in discount retailing was set: “In the next five years the three biggest outfits—the Marts, K and Wal, as well as the less well known Target stores … will be on one collision course after another. … By 1995 the three, which now control 70 percent of the discount department store business, will overlap in about 40 percent of their territories, up from 15 percent today.” The outcome was by no means any clearer by mid-decade, though Kmart appeared to be experiencing the greatest difficulty in maintaining profits. Kmart’s situation actually led to a shareholder revolt and divestiture request in mid-1994, initiated by certain large institutional investors.

However, a glimpse of the mounting battle in the form of price wars was offered in 1993 by articles in the Star Tribune and U.S. News & World Report. Both reported on a skirmish between Wal-Mart and Target, in which certain Wal-Mart stores apparently used flawed price comparison advertising. Target retaliated with ads headed “This Never Would Have Happened If Sam Walton Were Alive,” charging that Wal-Mart was posting inflated or misleading prices on Target items. Wal-Mart responded in kind, and Target requested an investigation by the Better Business Bureau. The whole price brouhaha was underscored in May 1993 when Wal-Mart began phasing out its slogan “Always the low price. Always” to “Always low prices. Always,” perhaps confirming the belief that price wars in discount retailing are ultimately unsustainable. Experts admitted that not even the largest companies in the industry could conceivably hope to offer the best prices on all products all of the time.

Meanwhile, a primary focus for Target was a reinvestment in its employees. Beginning in 1989, Target staff had been trained through an intensive course called “Target U.” to treat customers as guests and to generate a “fast, fun, friendly” shopping environment. According to Ronald Henkoff in Fortune,’ The new training has had a dramatic impact on employee turnover, which peaked at 89 percent among hourly workers in 1989—the year Target U. was born—and dropped to 59 percent in 1992. Customer service, as measured by the stores’ semiannual surveys, has been on a steady upward trend.” The 1993 Target annual report announced the company’s commitment to institute this “Guest Culture” —”modeled on the practices of premier customer services companies such as Disney” —nationwide.

Target’s most prominent goal in the mid-1990s was to seek out opportunities for new growth. During 1993, the company entered the Chicago market with 18 stores. Another 32 stores were added to existing markets in the Midwest, Southeast, and Southwest. By the close of 1995, the company operated 670 stores throughout the United States, including two new prototype SuperTarget stores, which offered grocery items in addition to Target’s regular merchandise.

The first SuperTarget store was opened in Omaha, Nebraska, in 1995, and the second store soon followed in Lawrence, Kansas. Target had studied the best grocery stores in the country prior to developing SuperTarget, and had then integrated those ideas into the already successful Target Greatland concept. The company hoped that the concept would result in a one-stop, no-hassle shopping experience for its customers. Success came quickly, and Target soon opened six more SuperTargets in Nebraska, Iowa, and Utah the following year.

Target also expanded its offerings chainwide in 1995, introducing three new services on a national level: a bridal gift registry, a baby shower gift registry, and the Target Guest Card—the company’s own credit card. Club Wedd, the bridal registry, had been in existence for a few years already, but the company took the concept nationwide in 1995 by linking all Target stores through a computer system that would allow people to access and use a couple’s gift registry at any Target throughout the United States. The Lullaby Club—a registry for baby gifts—soon followed. As for the Target Guest Card, the company issued its card to customers and then allowed them to use the card at any of the parent company’s retail stores. Conversely, customers could also use a Hudson’s card to make purchases at Target.

The End of the Century and Beyond

In 1996, Target continued its expansion efforts, adding 71 new stores throughout the United States, including an entrance into the metro market of Washington, D.C. By the end of the year, the company was operating 736 stores throughout the country, and had achieved annual revenues of $17.85 billion.

The company also continued its efforts to give something back to the communities that it served. In 1996, Dayton Hudson and its many retail divisions made grants of approximately $25 million. The following year, that figure rose to $39 million, including $2.8 million in scholarships that were given to high school seniors who had been involved in their communities. At the local level, Target stores contributed to the arts, education, and family violence prevention efforts. On a national scale, the company made contributions to the Washington Memorial Restoration project, the St. Jude Children’s Research Program, United Way, Habitat for Humanity, and its own National Wildlife Federation club for kids—EarthSavers.

By far one of the most popular community support efforts, though, was Target’s Take Charge of Education program. Initiated in 1997, the program allowed Target Guest Card holders to sign up the school of their choice to receive one percent of their Guest Card purchase amounts. Within two years, over 300,000 schools were registered, and over $800,000 had been given to these schools. Furthermore, in 1999 the company pledged to give back more than $1 million a week to the communities in which it did business. Examples of this generosity were seen immediately in January 1999, when tornados tore apart two cities in the state of Tennessee, and Target offered relief to the victims.

Target’s strategy, one of the most imitated among mass merchandisers in the country, had always been a model of simplicity: provide customers with quality products at low prices. In 1986, Target’s first president, Douglas Dayton, had remarked that Dayton Hudson “would have been a fading retail entity” without Target. This was even more evident 15 years later, as the company and the communities it served approached the end of the 20th century, and Target Stores continued to achieve success.

Further Reading

Apgar, Sally, “Target Accuses Wal-Mart of Not Playing Fair When Posting Comparative Prices,” Minneapolis Star Tribune, March 25, 1993, p. 1D.

“Big Three Discounters Top Big Builders List,” Chain Store Age Executive, December 1993, p. 114.

Fitzgerald, Kate, “Bob Thacker: Target,” Advertising Age, July 5, 1993, p. S18.

Grant, Linda, and Warren Cohen, “Shopping’s Big Chill,” U.S. News & World Report, July 12, 1993, p. 44.

Hendrix, Kimberly D., “Discount Stores Fared Well During Recession,” Chain Store Age Executive, August 1992, p. 19A.

Henkoff, Ronald, “Companies That Train Best,” Fortune, March 22, 1993, p. 73.

“In Retailing, Price Stranglehold Lessens,” Advertising Age, November 1, 1993, pp. S6, S18.

Ortega, Bob, “Wal-Mart Bows to Pricing Reality by Changing 4 Letters,” Wall Street Journal, May 21, 1993, p. B1.

Papa, Mary Bader, “William Andres: Executive of the Year,” Corporate Report Minnesota, January 1984, pp. 57-63.

St. Anthony, Neal, “Target Stores Have Made Their Mark: Discount Offspring Now Powers Parent Firm,” Minneapolis Star Tribune, April 7, 1986, p. 1M.

Saporito, Bill, “Is Wal-Mart Unstoppable?” Fortune, May 6,1991, pp. 50-59.

Schafer, Lee, “The Best Defense,” Corporate Report Minnesota, June 1989, pp. 31-35.

Stavig, Vicki, “A Sight to Be Sold,” Corporate Report Minnesota, April 1986, p. 37.

—Jay P. Pederson

—updated by Laura E. Whiteley