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    Target's Q4 Profits Sag 41%; Food, Reduced SKUs Called to the Rescue

    The discounter's merchandising plans will reflect its "growing commitment to food" amid major investments in its perishable food distribution capabilities.

    Weighed down by decelerated consumer spending and rising delinquencies in its credit card business, national discount retailer Target Corp. yesterday posted a 41 percent decline in its fourth-quarter profit amid a 1.6 percent quarterly sales decrease and a 6 percent slide in same-store sales.

    To counter the downward spiral, company officials said yesterday that Target's merchandising plans for 2009 would "reflect our growing commitment to food" and in turn make "significant investments in support of our perishable food distribution capability," with expanded assortments of dry, dairy and frozen foods, as well as the addition of perishable items in new and remodeled stores.

    During the fourth quarter ended Jan. 31, the Minneapolis-based company's net earnings were $609 million vs. $1.03 billion last year while sales decreased to $19 billion from $19.34 billion a year ago. Total quarterly revenues of $19.5 billion, from $20 billion in the prior-year quarter, were on par with analysts' consensus estimates during the period. Earnings per share also dropped 34 percent to 81 cents from $1.23 in the same period a year ago.

    Gregg Steinhafel, Target's chairman, president and CEO, said, "Our financial results for both the fourth quarter and 2008 fiscal year reflect the impact of unprecedented economic conditions on both of our business segments."

    Aside from ramping up strong selling consumables, the 1,677-unit discounter said it would also reduce its shelf space and brand breadth going forward, while de-emphasizing home and other discretionary categories in both its stores and in advertising.

    During a call with investors on Tuesday, Kathryn Tesija, Target's EVP of merchandising, said the chain will allocate "more shelf space to nondiscretionary categories such as food, household, personal and baby and health and beauty products" in its new and remodeled stores. In addition, the retailer also plans to leverage its marketing vehicles "to drive awareness of this merchandise. In our weekly circular we're devoting more space to frequency-driving categories and using themes to drive trips and basket size."

    Target will also concentrate on consolidating multiple sub-brands into a single brand "with quality enhancements and redesigned packaging that calls our product features and benefits," said Tesija, adding that it will also reduce its SKU count "to allow a cleaner presentation to more clearly communicate strength of this brand to our guests." Target also plans to relaunch two house brands this spring "to more clearly communicate their value and the consolidation of more than eight house brands across multiple divisions," she added.

    In an attempt to "boldly and accurately convey our value message," Tesija also said that Target has redesigned its circular to reduce the number of subfeature items to allow for enlarged images of feature items. The retailer has also increased the number of its single-price-point end caps to comprise three-fourths of each store's total end caps alongside new, larger signage.

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