Target announcing closures in Portland, Ore.; Seattle, Wash.; California; Harlem

[storewanderer]

San Diego U-T is reporting Target has decided they will not open their already built-out small format in Downtown.

They will be on the hook for over a million dollars a year in rent.

I think small format Target is dead in its current form and this is another example. That location didn't need the small format Target, it needed a grocery store.

The fact that they are willing to pay this giant lease rate gives a glimpse into just how much massive money they must be losing operating these small format store in large cities.

If anything I'd say they should just open the thing and market the space to someone else while it is open. But the operating losses for these must be so extreme that it makes more sense to just pay the dark lease.

I will be curious if the developer has any way to force them to open the store.

I doubt another retailer will take this space. I do agree that this store would have done almost no sales volume. There is just not enough foot traffic there and the traffic from the apartment building alone can't support a mini mart let alone a Target.

[HCal]

I still can't figure out what market these small format Targets are going for. The ones I have been in have a rather strange assortment of home goods, plus some groceries. The prices are often on the higher side. If most people are arriving on foot, they probably want to buy food or drinks, not towels and home decor. The store seems to be functioning like a 7-Eleven, but with a much larger footprint and higher costs that are clearly not sustainable. Perhaps the ones near colleges will sell apartment furnishings and such, but that is very seasonal.

I think Target should just focus on what it does best, which is big stores in suburbs. City centers don't usually have the population to support even a small format Target. Unless they plan on executing a merger with CVS, this whole experiment is probably going to fail.

[BillyGr]

I still can't figure out what market these small format Targets are going for. The ones I have been in have a rather strange assortment of home goods, plus some groceries. The prices are often on the higher side. If most people are arriving on foot, they probably want to buy food or drinks, not towels and home decor. The store seems to be functioning like a 7-Eleven, but with a much larger footprint and higher costs that are clearly not sustainable. Perhaps the ones near colleges will sell apartment furnishings and such, but that is very seasonal.

I think Target should just focus on what it does best, which is big stores in suburbs. City centers don't usually have the population to support even a small format Target. Unless they plan on executing a merger with CVS, this whole experiment is probably going to fail.

Perhaps they were trying to go for things that those in the area would need (such as the towels and home items, which need to be replaced every so often, even for someone in an apartment), while not carrying the items that are less likely to be sold (say, outdoor furniture or huge holiday decor that won't work with an apartment setting).

Then add some food items, since those would also be things that people need repeatedly, so they come in for those and hopefully see other things while there.

[ClownLoach]

I still can't figure out what market these small format Targets are going for. The ones I have been in have a rather strange assortment of home goods, plus some groceries. The prices are often on the higher side. If most people are arriving on foot, they probably want to buy food or drinks, not towels and home decor. The store seems to be functioning like a 7-Eleven, but with a much larger footprint and higher costs that are clearly not sustainable. Perhaps the ones near colleges will sell apartment furnishings and such, but that is very seasonal.

I think Target should just focus on what it does best, which is big stores in suburbs. City centers don't usually have the population to support even a small format Target. Unless they plan on executing a merger with CVS, this whole experiment is probably going to fail.

Perhaps they were trying to go for things that those in the area would need (such as the towels and home items, which need to be replaced every so often, even for someone in an apartment), while not carrying the items that are less likely to be sold (say, outdoor furniture or huge holiday decor that won't work with an apartment setting).

Then add some food items, since those would also be things that people need repeatedly, so they come in for those and hopefully see other things while there.

They have adjusted the assortment multiple times and can't get it right. When you look at these stores the only thing that sells is food and drug. There isn't enough room for any reasonable assortment of towels and other apartment or condo consumables. The selection is underwhelming, and when you recognize that Amazon is a much larger behemoth today vs. a decade ago when they first started opening these small stores you can see they've been rendered obsolete and they need to just close them. They are basically a CVS that somehow operates on an overhead many multiples higher (not to mention a much higher initial build out, although they became ultra cheap later and that didn't work out so well, see the butt-ugly Folsom store closing in SF for example as it has less ambiance than the stockroom in a Food4Less). The home goods aren't needed at all in these locations anymore. Groceries are, but Target isn't good at foods as we've seen and makes mistakes like mothballing product offerings based on sales volume which obviously never returns once the lines are discontinued like full service deli and bakery that only exist in the highest volume SuperTarget locations. They need to develop a grocery and drug focused conventional supermarket concept that fits in these locations below 50,000 Sq ft. They have all the ingredients and the recipes, but then they also face the facts that the locations are prone to shrink and other costs (like having to pay for employee parking in expensive office building garages) which mean that even if they did the right thing and fixed the concept it might not turn any profit.

[veteran+]

Target does not like food. It does not respect food. It does not know food and does not want to learn.

Your suggestions are spot on and it befuddles me as to WHAT IS WRONG WITH THEM!

[ClownLoach]

Target does not like food. It does not respect food. I does not know food and does not want to learn.

Your suggestions are spot on and it befuddles me as to WHAT IS WRONG WITH THEM!

They really do seem to like it only in high volume SuperTarget locations and apparently both of the stores by me fit the category (one is high volume, other is the single highest volume Super location in the company). They're putting a well trained employee on tending produce from open to close 7 days a week which is more than I can say for the big chains these days.

Where I think they've gone wrong is the volume code practice which nobody else in foods uses to make such drastic decisions in operations. You don't see a slow neighborhood Safeway that moves to only prepacked deli and closes the bakery if business is slow, but that's exactly how Target has operated the Super locations. It took me a while to figure out what is going on with their operation and how their decisions are made. So if a Super location is "LV" or low volume they basically cease to staff those perimeter deli and bakery areas, and don't staff produce either. "MV" gives skeleton staffing to deli and bakery which enable them to make pre-made items. "HV" means staffed bakery that can take cake orders and staffed deli that will cut meats and cheeses to order.

All this means is that they encourage sales to decline if a store moves from "HV" down to "MV" which winds up becoming permanent, and apparently there is a cutoff point where they decide to pull out the expanded assortment entirely and get rid of the equipment (de-Supering). Rarely does a store move from "MV" up to "HV". They need to just make the decision on a company wide basis as obviously someone (or a lot of someones) are still developing new processes, recipes, etc for this subset of the chain that is about 10% of their units. Open and fully staff all those departments then tweak the pricing etc. so it's profitable across the entire subset of stores instead of micromanaging the labor and shrink expense on a store by store basis. They just changed the bakery program for the better a few weeks ago as I previously mentioned, but I also saw that the two stores execute differently.

The baffling part is knowing that they're losing a fortune on the small format stores that would become drastically more productive from being remodeled to basically just the left quarter of a Super location (foods perimeter, basic household goods incl. cleaning supplies and paper products, drug, pet, and basic beauty). Most are old supermarkets anyway that generated much more revenue before (and on what was assuredly less rent than Target is paying).

They have all of the solutions available but seem to be afraid of attempting to execute them. Too much fear of the past even though there is so much potential ahead.

[mjhale]

They have all of the solutions available but seem to be afraid of attempting to execute them. Too much fear of the past even though there is so much potential ahead.

Where does Target's fear of grocery come from? Something historical? Something more recent, maybe in terms of competing with Walmart? Target is in areas that Walmart wouldn't or hasn't been able to get into. And specifically near me Target has a few stores where there is no grocery nearby or the nearby grocery choice is subpar. Seems to me this is a good way to increase volumes and foot traffic into the stores. Not every store needs to be massive. However, as you've said the store needs to serve the community. Walmart has been flexible in their design of several Supercenters near me to provide full grocery, meat and produce but not have deli, meat or bakery counters. These Walmart stores are still busy despite the lack of things that people would complain about being missing in most traditional grocers.

[Alpha8472]

I visited a mini Target in downtown Berkeley, California. It is a college town, but even with thousands of students, the store was not busy.

The selection was terrible and there wasn't much food. It was sort of like a convenience store with a CVS pharmacy inside. You would have to go to a full sized Target store to get what you need. There was not much clothing except for UC Berkeley sports related clothing.

[storewanderer]

They have all of the solutions available but seem to be afraid of attempting to execute them. Too much fear of the past even though there is so much potential ahead.

Where does Target's fear of grocery come from? Something historical? Something more recent, maybe in terms of competing with Walmart? Target is in areas that Walmart wouldn't or hasn't been able to get into. And specifically near me Target has a few stores where there is no grocery nearby or the nearby grocery choice is subpar. Seems to me this is a good way to increase volumes and foot traffic into the stores. Not every store needs to be massive. However, as you've said the store needs to serve the community. Walmart has been flexible in their design of several Supercenters near me to provide full grocery, meat and produce but not have deli, meat or bakery counters. These Walmart stores are still busy despite the lack of things that people would complain about being missing in most traditional grocers.

It isn't a fear of grocery. It is laziness. They don't want to allocate the labor or resources to get it right.

In the good times, in the 2000's and even in that 2012-2018 period, the reality is that Target is much better off getting customers to go in and buy non food, with far higher margins, than play the limbo on food prices on food with Wal Mart (which is what Target did with its food business in the early 2000's and of course it didn't make any money). So throughout the 2000's Target management is there saying we have all this general merchandise stuff that is the same stuff Wal Mart/Kmart sell but since we present/display it better than Wal Mart and our store is clean/orderly on and doesn't smell like a Kmart, customers come here for our general merchandise and we get an extra couple dollars for it so why are we wasting our time losing money on food?

Next issue is the old stubborn Target backroom model (which has been changed somewhat thanks to the .com initiatives). Target ran a food backroom the way they ran the backroom for a box of medicine, every item in a location in a bin. No pallets allowed on the sales floor during customer hours. Shelf allocations were often "off" so shelves went out of stock too quickly on food and it was labor intensive to keep running back and forth from the backroom to put 3 new cans of coffee on the shelf since their space allocations were off, they didn't allow extra displays (stack of boxes of the sale coffee on the floor in front of the shelf, for instance), etc.

We got half hearted efforts out of Target like P-Fresh during the above time but that was always a joke.

Now since 2018 Wal Mart doesn't price food so low anymore and food has been a serious profit driver for Wal Mart and they have serious pricing power. They are taking advantage of that. Suddenly Target sees this and wants to get more interested in food again. They see they can now make some very good margins on food. Too little, too late in my opinion.

[buckguy]

Grocery was forced on them by Wall Street. Beyond the kind of dry grocery they had in the past (junk food, maybe coffee or some specialized lines), they've never been interested and it isn't part of their "DNA" which is the department store world. The other issue is that a relatively full line of grocery requires refrigeration, a lot of attention to rotation, knowing how to buy perishables, etc. It's low margin and labor intensive. If it isn't part of a core business, it doesn't seem worth it---low margin, high investment. I always figured the sweet spot for them was to skip meat, produce, and bakery concentrate on dry grocery and perhaps some frozen food that fit their upscale-ish image, under charging chains on things like "premium" coffee and cereal brands..

As for who goes to the small stores. Look at where they're located---they're often in dense walkable city and inner-ring suburbs or near colleges. They're bigger and cheaper than a CVS, limited grocery but not Aldi-like, and they carry high volume soft-lines. Decades ago, these areas would have supported a variety store. In some cases, they had too many of them as in Center City Philly and they closed one in old retail core, but kep open others in more vital residential areas and near Penn and Drexel. In DC, the stores near American U and in Bethesda seem to do fine and are well-placed. The one in College Park closed---U of Maryland doesn't have a normal "college town" near it for a school its size (lots of commuters) and they had two large stores nearby in places where students shop. There was always some risk to the strategy because it isn't like opening a new store in a developing suburb, but they seem to hits as well as misses..