Target 'On a Roll' With May Sales Gains

NEW YORK — The addition of food and consumables to Target [4] is continuing to provide sales momentum even as the larger market slows, figures released last week show.

Same-store sales at the Minneapolis-based retailer increased by 4.4% in the four weeks ending May 28 — a pace that came in at the high end of its own expectations and above overall retail sales gains in the U.S., estimated at 4% for the period. Food saw comparable increases in the “low double-digits,” to lead sales increases by department, Target said. Two-thirds of the comp increase was driven by larger average transaction size, with the remainder driven by in increase in the number of transactions.

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“Target is on a roll. Many people thought much of their performance in February and March could be attributed only to the warmer weather, but they’ve kept on rolling away, and they are attributing a good portion of that to PFresh,” Leon Nicholas, director of retail insights at Kantar Retail, Cambridge, Mass., told SN.

“To the extent that they become more of a food and consumable retailer over time suggests the danger to the supermarket industry is not that it takes away trips, but it takes away basket elements,” Nicholas added. “If I’m Kroger, I’m worried that over time, my basket pieces will get chipped away by a Target shopper who is picking up cereal or paper towels if they see them on sale at Target, and not picking them up at Kroger.”

A preliminary tally of 20 retailers reporting comp-store sales last week showed that comps grew by 4% in May, up from a 2.8% April increase but slower than the 6.8% sales pace shown during March.

Craig Johnson, president of Customer Growth Partners, New Canaan, Conn., said that pace illustrates a slowing to a “normalized” spending rate, helped in part by slowing inflation in food and fuel.

2012 SN Top 75: Target Corp. Ranks No. 4 [4]

“Clearly the economy is in a bit of a slowdown,” Johnson told SN. “Not that it’s heading south, but it’s going sideways. And with the inflationary aspects of gasoline coming down — we expect at least more reasonable prices in gasoline, although below $3 isn’t out of the question — and food inflation much lower than it was a year ago, it’s less of a factor in sales.”

Johnson said he expects more “low to moderate” sales growth in the coming months en route to predicted overall sales growth of around 5.7% for the year. “It was hotter than that in the early months, but it will be softer than that for the next few months,” he predicted. Geopolitical events that could affect fuel prices remain a wild card, he added.

“This can be a good environment for well-managed companies,” Johnson added. “Good operators can do very well if they can execute the day-to-day blocking and tackling.”

Costco Wholesale [6], Issaquah, Wash., said U.S. comps improved by 5% for the four-week May period.

“Those retailers that have a focus against the upper half of the hourglass actually look pretty promising,” Nicholas said. “That’s a little surprising given how the stock market has been, and it suggests to me that guys like Target and Costco are doing a good job of communicating value to that shopper.”