Report: Target Depending More on Non-Discretionary Products

Non-discretionary merchandise accounted for 44 percent of sales in 2011, up from 39 percent in 2009-and driving the shift is a strategy to induce the retailer's loyal, high-income shoppers to buy more rather than attracting new customers, according to a recent Star Tribune Point of Sale blog post.

Target has reportedly been reinventing itself by increasingly depending on non-discretionary products to drive sales at the expense of discretionary items.

A recent Star Tribune Point of Sale blog post notes that non-discretionary merchandise, which includes household goods and food, accounted for 44 percent of sales in 2011-up from 39 percent in 2009. At that rate, non-discretionary items could account for more than half of Target's sales in just a few years.

Writer Thomas Lee points out that while Target has adjusted its sales mix, it hasn't changed its image as the “cheap chic” retailer of choice for designers like Michael Graves, Missoni, Liberty, and Jason Wu. In other words, “Target may hang out with the fashionistas in New York but it's mainly selling toilet paper and cat food to everyone else,” Lee writes.

Driving the shift, he says, is a strategy to induce the retailer's loyal, higher-income shoppers to buy more rather than attracting new customers.

And there are signs that the strategy is working. Target's same-store sales-sales at stores open for at least a year and an industry barometer-grew 3 percent in 2011. Most of the boost reportedly came from shoppers buying more items per purchase and spending more money. The average transaction amount jumped 2.6 percent last year-substantially more than the 0.1 percent increase in 2010.

The focus now must be on profitability, according to the blog. Target has remodeled its stores to its PFresh grocery format, which includes meat, fish, and bakery items. And it continues to offer its REDcard, which provides users with an automatic 5 percent discount off total purchases at the register. But Target has reportedly struggled at times to get its PFresh and REDcard shoppers to buy higher-priced merchandise throughout the store-which is important because grocery and beauty items carry lower profit margins than clothing and furniture.

Target serves customers at 1,767 stores and on its website-and it will expand into Canada next year. It is Minnesota's second-largest public company based on revenue, which totaled $68.5 billion in the fiscal year that ended in January. The retailer saw significant same-store sales increases in both January and February.

To read the full Star Tribune blog post about Target's reinvention, click here.