Is Target Becoming a Grocery Store?
Feb 14th 2012 10:48AM
Updated Feb 14th 2012 4:12PM
Last weekend I made my often-traveled trip to my local Target (NYS: TGT) store to pick up a random assortment of items. This store happens to be the store next to Target's headquarters in downtown Minneapolis, so it's a mini testing grounds for the retailer. During the week, you can see ambitious Target employees observing everything from store design to buyer tendencies as they walk through the aisles.
On this particular trip, I noticed a trend at Target that has me wondering what the company has in store for our shopping future. It's a trend I like to call "grocery sprawl."
Retail is changing
When I was growing up, Target wasn't known for groceries. Stores had milk, chips, and maybe some Hot Pockets, but you didn't make a trip to Target to feed the family. That began to change after Wal-Mart (NYS: WMT) began having success with its supercenters and Target launched Super Target. Now, if you can't go through the express line you're bound to wind up in line behind someone who bought a month's worth of groceries, patio furniture, and a new 32" TV.
Even at your standard stores, groceries have become a larger part of the layout. At the headquarters, Target groceries used to cover one row of aisles. Slowly they spilled across the aisle into another row. Now I'm worried my DVDs will come home smelling like Wonder bread.
A necessary change
It's really been a survival technique used by retailers as an onslaught of competitors entered the market. Best Buy's (NYS: BBY) electronics stores have been rendered almost obsolete by Amazon.com (NAS: AMZN) and other online retailers. Target and Wal-Mart have managed to stay relevant because you can pick up an iPad and a loaf of bread all in the same trip.
Target may in fact become more of a grocery store all the time, and maybe it's not such a bad thing. I'm not a big fan of shopping, and if Target can provide everything I need with one-stop shopping, I'm all for it. Groceries definitely make Target a shopping stop that can't be found online. Maybe it isn't Wal-Mart that should be looking for a bulls-eye on its back but Nash-Finch and Supervalu instead. It's not just Wal-Mart and Target that are trying this out either. Walgreen (NYS: WAG) and other pharmacies have started adding lower-margin grocery items to drive more traffic and become one-stop shops. The idea is that the margin loss will be made up for with traffic gains.
Groceries are just one part of the changing face of retail, though. The industry is constantly changing, and our analysts have two stock picks that will profit from evolving consumer behavior. In our free report, "The Death of Wal-Mart: The Real Cash Kings Changing the Face of Retail," we reveal these picks -- but hurry, the report won't last forever.
At the time this article was published Fool contributor Travis Hoium does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.The Motley Fool owns shares of Best Buy, Wal-Mart Stores, and Amazon.com. Motley Fool newsletter services have recommended buying shares of Wal-Mart Stores and Amazon.com. Motley Fool newsletter services have recommended creating a diagonal call position in Wal-Mart Stores. Motley Fool newsletter services have recommended writing covered calls in Best Buy. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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