STORE SPACES

Target CEO details initiatives at annual meeting; 230 remodels and 20 to 25 new stores on tap

BY Mike Troy

New York — Canned peaches, criminal records and political contributions were among the shareholder concerns expressed at Target’s annual meeting on Wednesday afternoon.

The meeting, held inside a soon to open CityTarget store in downtown Chicago, lasted less that an hour and featured a brief recap of the company’s 2011 performance from chairman, CEO and president Gregg Steinhafel. He touched on previously disclosed details regarding some of the company’s key strategic initiatives such as the 5% REDcard Rewards program and the PFresh store remodeling program. Both are key drivers of Target’s improved financial performance and enabled the company to produce a first quarter same store sales increase that was the strongest in six years.

Last year, Target set a record and remodeled 400 stores to its PFresh format which features expanded food and consumables. The program, now in more than 1,000 of the company’s former general merchandise stores, has begun to decelerate with 230 remodels planned for this year. New store growth is ticking up to between 20 and 25 stores.

The REDcard program, which offers a 5% discount to those who pay with a Target debit or credit products, doubled its penetration rate last year to account for 9.3% of purchases. Steinhafel thinks that figure could go higher as the penetration rate in Kansas City, where the program was first tested, is now at 16%. Another key highlight mentioned by Steinhafel is that Target now has 10 proprietary brands that generate annual sales in excess of $1 billion.

He also alluded to the growth potential of the CityTarget format, noting that the Chicago location where the meeting was held with be one of three (Los Angles and Seattle are the others) locations to open next month. They will be followed by October openings in San Francisco and a second Los Angeles location. A third Los Angeles location will open in 2013 along with a location in Portland.

Despite the improvements highlighted by Steinhafel, when he opened the floor for questions shareholders took the meeting in a direction unrelated to the company’s growth prospects or ability to execute key initiatives.

Instead, what executives got were questions about political contribution policies, some of which related to a now two year old issue that arose after Target gave money to a candidate opposed by the gay and lesbian community. Another speaker took exception to Target selling gay and lesbian pride T-shirts on its Website and felt the company had been pressured into doing so. Another speaker questioned the need for Target to be involved in the Retail Industry Leaders Association trade group

Steinhafel defended the company’s involvement, noting that while there is a risking related to involvement in politics, legislative and regulatory matters, the bigger risk is not participating.

“We focus our energies around two things; swipe fee reform and efairness,” Steinhafel said. “It is important for us to have a seat at the table because we want a level playing field.”

Another shareholder took exception to Target’s efforts in the area of sustainability and seemed concerned that the company’s environmental efforts were resulting in higher prices. He encouraged the company to produce a report showing how much its efforts were adding to the cost of goods. Another shareholder appearing on behalf of a person who was denied unemployment wanted Target to reform its hiring practices.

And then there was a gentleman from California concerned that Target’s canned peaches are sourced from China and cost more than those sold at Walmart that are sourced from California.

Kathee Tesjia, Target’s executive VP merchandising, vowed to look into the matter and apologized because the company is relatively new to the food business but looking to beef up its local sourcing efforts. Steinhafel took it a step further and said: “there is no excuse for us to ever be higher priced that our competitors on a similar item.”

The meeting ended with a longtime shareholder lamenting that no one ever talks about all the good stuff Target does.

“The board is doing a fantastic job and the stock is way up. Thank you,” he said.

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REAL ESTATE

Survey: Big-box closings drive up retail vacancy rate to 8.2% in northern New Jersey market

BY Marianne Wilson

Old Bridge, N.J. — Driven by new big-box store closures, the vacancy rate in retail properties along northern New Jersey’s six major shopping corridors edged up to 8.2% in April from 8.1% a year ago and 8.0% in 2010, according to R.J. Brunelli & Co.

The Old Bridge-based retail brokerage firm’s 22nd annual study of the six-county northern New Jersey market uncovered 2.33 million sq. ft. of vacancies in the 28.34 million sq. ft. of space examined along the six corridors, with availabilities seen in 159 of the 818 properties evaluated. This compared with 2.33 million sq. ft. of vacancies in 28.78 million sq. ft. of space in the 2011 study, in which openings were seen in 173 of the 817 properties reviewed.

Traditionally one of the tightest retail real estate markets in the nation, the northern region has seen its vacancy factor increase for five consecutive years as big box closures began to take a toll. The region’s vacancy rate escalated from just 2.9% in 2007 to 3.6% in 2008 before jumping to 6.6% in 2009 and 8%-plus in the last three years. Over the last 10 years, the region’s rate was as low as 2.0% in 2003.

R.J. Brunelli’s 2012 study reviewed shopping centers and freestanding buildings exceeding 2,000 sq. ft. along State Highways 4, 10, 17, 22, 23 and 46/3, and certain intersecting arteries in Bergen, Essex, Morris, Passaic, Somerset and Union counties. Freestanding restaurants, auto service facilities and auto dealerships are also included, while enclosed regional malls and centers under construction or redevelopment are excluded.

Big-box spaces exceeding 20,000 sq. ft. were once again a major driver of the region’s vacancies, representing 1.09 million sq. ft., or 46.8% of the empty space along the six corridors, up from a 45.7% share in 2011.

Notably, approximately 798,500 sq. ft., or 73%, of this year’s empty big-box space came from stores that remained vacant since the firm’s 2011 survey and, in a number of cases, from 2010 and before. This represented an increase from the 62% ratio of held-over big-box inventory in 2011, but comfortably below the 84% ratio seen in the firm’s 2010 survey.

"The Chapter 11 filing of The Great Atlantic & Pacific Tea Co., which has since emerged from bankruptcy protection, and the demise of Borders continued to have the biggest impact on the northern New Jersey market," said Richard J. Brunelli, president of the firm.

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FINANCE

Target raises dividend

BY Staff Writer

Minneapolis — Target Corp. said Wednesday its board approved the increase of its quarterly dividend by six cents, or 20%, to 36 cents. The chain will pay the dividend on Sept. 10 to shareholders of record as of Aug. 15.

Target Corp. has paid a dividend every quarter since going public in 1967.

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