Can Food Pull Target Up in Recession?

Target has been expanding its food offerings, and seems poised to expand them further. On Monday, as they released their horrifying earnings report, Target executives may have been wishing they started earlier.

The discounter reported a 24 percent drop in its third-quarter earnings, and same-store sales declines of 3.3 percent.

The problem, given current economic trends, is the product mix. “In the quarter,” Bloomberg News reported, “customers bought primarily groceries and drugstore items.”

That represents “an adverse mix impact,” said finance chief Douglas Scovanner in a conference call with analysts. It “will be with us until the economy improves. It is simply the result through our picture of sharply lower apparel and home sales in this country in stark contrast to the growth that we’re experiencing in food and health and beauty categories, in line with macro trends in U.S. retailing.”

The problem, he added, is that

If you add together food and health and beauty, in our case in the aggregate those categories, as large as they are, remain smaller than the aggregate of apparel and home products. That’s why the algebra works against us in the current environment in reporting sales.

The chain plans to add more food and drugstore items, and to offer more discounts, to offset sagging demand for home goods, jewelry and clothes, which together make up 40 percent of Target’s sales.

In its home city of Minneapolis, Target is experimenting with greatly expanded food sections in two stores. The sections are offering much more fresh produce, fresh meat and bakery items. The sections are about 40 percent larger than the food sections in its regular stores.

During the conference call, CEO Greg Steinhafel said “it’s too early to conclude anything” about how well the experiment is going, but added, “we’re going to continue to push and test aggressively a multitude of food expansions and remodels in other test stores to make sure that we thoroughly understand where it works, where it doesn’t work.”