Target: Expect More, Get Less

Despite its media reputation as a marketing innovator and gross-profit margins in years past of 30% (vs. Wal-Mart’s 24%), Target has found itself under siege both from the marketplace and an activist investor.

William Ackman’s Pershing Square Capital Management is trying to stir up a hornet’s nest among stockholders after sales at stores open at least 1 year fell 2.9%. Ackman wants Target to be more like its Bentonville rival and stress food sales during these lean retailing times, so he put forward a dissident slate of nominees for the company’s May 28th board meeting. Target got into food retailing in 1995 when it opened 245 SuperTargets offering a full array of groceries in response to its Arkansas adversary. But these large (175,000-square-foot) retail footprints are expensive to operate, and the company has had difficulties finding profitable locations. And with its dominance in non-food products like bedding and fashion, the company held off adding more groceries to its retailing mix. Until now.

Most non-food chains like Sports Authority and Best Buy are staring at cutbacks or even possible Chapter 11. Most grocery chains are hiring workers on a regular basis and reporting profits. In addition, Target has seen its once-unique fashion-forward, trendy template copied by J.C. Penney Co. and Kohl’s Corp. Even dowdy Wal-Mart is taking away market share in bedding with its combination of value and improved style. Wal-Mart’s non-food sales are off, too, but unlike Target, it derives 59% of its revenue from food (which includes groceries, pharmacy products and HBA), while Target gets only 37% of revenue from grocery.

The company is trying to play down any potential shareholder insurrection, even as Ackman taunts them with web conference calls (Pershing Square is Target’s 6th-largest stockholder). Target CEO Gregg Steinhafel is clearly moving to quell the insurgency y announcing the company will open 100 new or remodeled grocery units this year, with the potential to take the plan to all of its 1,300 outlets if the move proves successful. But he sniffs at any comparisons with Wal-Mart, calling his rival “a grocer that happens to also sell general merchandise.”

Don't you just love arrogance?

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