CityTarget – Urban Concept Worth Watching

1. CityTarget – Urban Concept Worth Watching By Sandy Skrovan and Louise Howarth Retail Analyst Research Director - US July 2012 A Service

2. Background Target has opened its first of five smaller format CityTarget stores in 2012. Stores are being located in several types of urban settings – downtown, tourist destination, transit hubs, etc. – in order for Target to gauge the concept’s viability in different location types and with different consumer types. Seattle Pike’s Fish Market Type: Tourist area Chicago - State Street Type: Downtown – Central Business District Portland - Galleria Type: Downtown mixed-use center Planned CityTarget openings San Francisco Metreon Type: Downtown mall 2012 Los Angeles (3) Types: - Westwood/UCLA campus area - Downtown – Fig@7th - Urban – Beverly Connection 2013 (announced) • Planet Retail’s take • Smart idea – but a long time coming. Urban is one of few US expansion opportunities remaining for big-box retailers. Overall, Planet Retail thinks this is an excellent move – and one that could launch another round of new store openings by Target.

3. Location On trend with big-box retailers exploring small-box concepts, CityTarget is designed to fit within the real estate constraints of densely populated urban areas. Planet Retail had the opportunity to preview the new downtown Chicago CityTarget before its grand opening to the public on July 29, 2012. Our impressions and takeaways follow. • CityTarget location: Two-level store at 1 South State Street, Chicago ILin the former Carson Pirie Scott building, a busy downtown location in the Chicago Loop (central business district). • The surrounding area is retail-focused. Directly opposite the store’s main entrance is The Body Shop. Other nearby retailers across the street include Sears, Office Depot, Urban Outfitters and Forever 21. • To accommodate a mix of city-dwellers and commuters, CityTargetis well-served in terms of public transportation. A bus stop and “L” (elevated) train station are located just outside the store’s main entrance. • Not too unexpectedly, CityTarget does not provide a parking garage or parking lot for shoppers with automobiles. • Planet Retail’s take • The busy downtown area provides a good testing ground for one of the first CityTarget locations. Something new for Target will be drawing foot traffic into the store – since the site differs substantially from the retailer’s typical destination locations in suburban shopping centres. • From a transportation standpoint, it will be interesting to see how Target handles being located in the urban core – which could present a distribution and logistics nightmare for retailers unaccustomed to busy, congested and not easily navigable areas. • Getting the supply chain right will be a challenge since Target will need to replenish the smaller stores more frequently than its big-box units.

4. Layout A critical success factor will be getting the right mix and assortment in the CityTarget stores. A key objective for Target is learning how to segment and tailor the mix for different stores and shoppers - and then apply what it learns not just in future CityTarget locations but company-wide. • Planet Retail’s take • The conversion of conventional Target stores into Pfresh (its grocery-based format) is nearing completion. A next step on the radar screen is segmenting stores and shoppers in order to tailor mix and assortment based on local market surroundings and shopper needs. • Lessons gained from CityTarget could help propel Target forward in terms of developing a store segmentation scheme to apply chain-wide.

5. Store Size Unlike some retailers exploring true ‘small-box’ concepts, CityTarget – while smaller when compared with conventional Target stores - remains relatively ‘large’ in size in order to serve many trip types: fill-in, grab-and-go/immediate consumption and stock-ups. • Most CityTarget stores will range in size from 60,000 – 100,000 sq. ft., about half to two-thirds the size of a conventional 125,000 sq. ft. Target store. • However, the new Chicago CityTarget measures 124,000 of selling sq. ft. – larger than we anticipated. • Target’s goal is to carry all typical categories in CityTarget stores. Yet some have been scaled back somewhat to fit space constraints or because they are not necessarily suited to urban Chicago demographics and needs. • Some notable differences: • Fewer kids and teen clothing and bedding categories • Reduced baby offering • No garden furniture, outdoor products or camping gear • Planet Retail’s take • We expected a smaller footprint, but at 124,000 sq. ft. found the store not too different from a conventional Target. • We were hoping to see Target “change it up” more than it did, but found the CityTarget offer quite reflective of a typical Target store. We were a bit disappointed to find that Target did not stretch too far from its comfort zone. But as the old adage goes: Why fix what ain’t broken? Instead of straying from its core, we should credit Target for sticking to what it knows best. • Planet Retail believes the opportunity exists for Target to go smaller still in terms of store size to develop a truly unique small-box conceptwith its own unique merchandising flavour.