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Co. puts a bull’s-eye on health and wellness

BY Jim Frederick

Stung by the steep drop in consumer discretionary spending last year, Target has shifted its retail strategy to focus harder on such necessities as health and personal care products and food—and less on such higher-margin but slower-moving categories as apparel and electronics. It also revamped its circular advertising to play up a value and low-price message on promotional items.

Responding to tough market conditions, Target also has scaled back its store-construction schedule, from a net addition of 46 new Target and 12 Super Target stores last year to a plan for just 10 new stores this year. However, the company also revealed plans to remodel some 340 of its stores over the coming year. The goal, said chairman, president and CEO Gregg Steinhafel, is “to improve sales, capture market share and increase profitability in this challenging economic environment.”

The strategy appears to have worked. Target reported a 15.2% rise in per-share earnings for fiscal 2009, and net earnings of $936 million for the fourth quarter ended Jan. 30, compared with $609 million for the same period last year. Fourth-quarter earnings per share jumped 53.3% over the prior-year period.

Sales, however, declined 2.5% on a same-store basis, although the chain’s sales momentum began to improve in the final quarter of the fiscal year ended Jan. 30. Total sales for the year were up 0.9% to $63.4 billion, thanks to contributions from newer stores, including the chain’s first stores in Alaska and Hawaii.

“We’re very pleased with our fourth-quarter and full year 2009 financial performance, which reflects substantial innovation and disciplined execution by teams across the company,” Steinhafel said. “Fourth-quarter retail segment performance was well above our expectations due to stronger-than-expected holiday sales, combined with well-controlled inventories and disciplined expense controls.

TARGET

Headquarters: Minneapolis 2009 sales: $65.4 billion% change vs. 2008: 0.6%No. of stores: 1,740No. of stores with Rx: 1,552Avg. store size: 110,000 sq. ft.Rx sales: $2.9 billion% of sales from Rx: 4.6%Sales per store: $36.5 million

* Total sales includes $63.4 billion in retail sales and $1.9 billion in credit card services

Source: Company reports, Drug Store News

Nevertheless, the anemic sales growth picture raised some muted alarms on Wall Street, although faith in Target’s long-term potential and market strength remains rock-solid. Standard & Poors noted the company’s “fairly consistent earnings track record, and its healthy balance sheet and cash flow,” but voiced “concerns over potential loss of market share as a result of lackluster merchandising and aggressive pricing by competitors.”

Despite those concerns, noted S&P on March 13, “we see Target weathering a challenging retail environment with its growing assortment of value-priced consumables, including new and ‘up & up’ private-label merchandise [encompassing about 800 items across 40 categories], and the addition of fresh food in new and remodeled stores.”

S&P also praised “steps Target is taking to better align store assortments with customer preferences and in matching competitors’ pricing.” Those steps are well underway as Target chases higher per-unit sales and traffic. Its primary tool: a new store design that features wider aisles, expanded food assortments, improved product adjacencies and a new pharmacy location at the front of the store.

“We … intensified our efforts to enhance the onestop shopping convenience we provide … by continuing to expand our assortment of food, pharmacy and household commodities in our general merchandise stores,” noted Steinhafel in the company’s most recently published annual report. He called pharmacy a “key strategic initiative” at Target.

On the pharmacy side, Target is aggressively promoting such healthcare products as diabetes supplies in its circulars, along with its ongoing $4 pricing for 30-day supplies of many commonly prescribed generic drugs. Target also offers 90-day supplies of those me-too medicines at $10.

The company also has invested in pharmacy technology upgrades to boost efficiencies in the dispensing process and drive a more integrated approach to patient therapy and outcomes.

The company’s long campaign to raise the visibility, drawing power and service levels at its in-store pharmacy departments—1,584 of its 1,740 Target and SuperTarget stores have pharmacies—continues to pay dividends in customer loyalty. For the third year in a row, the chain scored highest in pharmacy satisfaction levels among mass-merchandise retailers in the 2009 customer satisfaction survey from J.D. Power and Associates. With a total score of 831 out of 1,000, Target outpolled Costco, Sam’s Club, Kmart, Walmart and other big-box pharmacy rivals.

Internally, Target is using its market-bending clout to push both its employees and the nation as a whole toward healthier lifestyles that generate lower health costs. One example: the company was a founding member in 2009 of the Alliance to Make US Healthiest, a coalition whose goal is to boost the physical and emotional health of U.S. citizens within homes, schools and the workplace. In line with the move, Target pledged to “foster actions and policies that encourage and sustain health,” and to provide health and preventive-health benefits for its own employees to “make it easier and more affordable for all Target team members and their families to get and stay healthy,” the company noted.

We view our participation in the alliance as part of our civic responsibility,” asserted Target VP human resources John Mulligan. “Its vision on health ties closely to ours, focusing on promoting prevention and wellness, and improving the nation’s overall health.

Target’s leaders also continue to drive innovation as a core response to a down economy and intense price competition. The newest example is the launch in March of a scannable mobile coupon program that allows customers to receive exclusive offers directly on their mobile phones. Coupons are redeemed by scanning a barcode on the phone at checkout.

Using their cell phones, customers also can access their Target Mobile GiftCards, view online assortments, check product availability and store locations, manage their Target gift registry and lists, browse the weekly ad, and receive text and e-mail notifications of deals.

On the expansion front, Target opened its first stores in Alaska and Hawaii over the past two fiscal years. The upscale discounter now can call itself a truly national retailer, with operations in 49 states.

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Schnucks’ O’Brien to serve on Department of Agriculture advisory committee

BY Alaric DeArment

ST. LOUIS An executive from Schnuck Markets will serve on an advisory committee of the Department of Agriculture, Schnucks said this week.

Agriculture secretary Tom Vilsack announced that Schnucks VP produce and floral Mike O’Brien would be one of 25 people appointed to a two-year term on the USDA’s Fruit and Vegetable Industry Advisory Committee. O’Brien is also vice chairman of the Produce Marketing Association.

 

“I am honred to represent Schnuck Markets and the retail produce industry as a member of this committee,” O’Brien said. “I am looking forward to the opportunity to contribute and to make a difference for families across the nation.”

The committee, originally chartered in 2001, advises the secretary of agriculture on industry issues related to fruits and vegetables.

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Gilead commences phase 3 trial for single-tablet HIV treatment

BY Alaric DeArment

FOSTER CITY, Calif. Gilead Sciences has started a late-stage clinical trial of an investigational 4-in-1 treatment for HIV, the drug maker said.

Gilead announced the initiation of a phase 3 trial of its “Quad” HIV drug, a single-tablet treatment that combines elvitegravir, cobicistat, emtricitabine and tenofovir disoproxil fumarate. The study will compare the Quad regimen with the standard of care among adults with HIV-1 who have not taken antiretroviral treatments. The company is also investigating cobicistat as a standalone boosting agent for antiretroviral drugs.

“We are pleased to announce that the Quad phase 3 clinical program is underway,” Gilead EVP research and development and chief scientific officer Norbert Bischofberger said. “Efficacy and safety results from the phase 2 study suggest that the Quad may represent an important new option for patients with HIV.”

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