Target to Spend $1 Billion on Remodeling Stores, Testing Small Urban Shops

Target Corp. (TGT) plans to announce a $1 billion renovation program that will include revamping its existing stores, experimenting with smaller store openings in urban areas and expanding its presence abroad over the next decade.The ambitious plan will kick off with the renovation of about 340 stores this year. The changes will primarily focus on merchandise and store design and will include such measures as expanding its grocery departments and altering the layout and product mixes in the beauty, home electronics and video games departments.

The remodeling is the result of Target's P-Fresh initiative, a move toward offering a larger selection of fresh foods that the company has been testing in select stores over the past year. Faced with growing competition from Wal-Mart Stores (WMT), which has been aggressively remodeling stores, as well as discount clubs like Costco Wholesale Corp (COST) and BJ's Wholesale Club (BJ), Target has been experimenting with new concepts like P-Fresh in order to attract penny-pinching consumers who are increasingly turning to discounters for their grocery shopping needs. The competition is getting heated. Over the past year, Target has engaged in a price-dropping tit-for-tat with Wal-Mart and has recently taken on the warehouse clubs by testing a limited-time sale of bulk items it called The Great Save.

Domestic Expansion Will be Limited and Experimental

While Target will be busy renovating its existing stores, it does not plan to open very many new ones. In fact, the retailer said its plans for the year include fewer than 10 net new stores. City dwellers, however, may see a new version of Target popping up on their block. The company said it will begin testing a new concept for dense urban markets that features smaller stores with a reduced selection of products.

Meanwhile, over the next decade, the company plans to expand stores outside the U.S. Management estimates that a larget percentage of the company's growth in the next three to five years will come from Canada, Mexico and the rest of Latin America.

Target is just one of several retailers who are looking to renovate existing stores and test new strategies in order to grab more market share and reap greater profits. With unemployment still a major concern, consumer spending is expected to remain weak. Instead of opening new stores, merchants will focus on squeezing every dime they can from shoppers by merchandising their stores to the hilt and trying to make them a one-stop shopping experience.
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