Target CEO remains optimistic, despite dismal earnings report

Like most retailers, Target has been seeing its sales, as well as profits, slide. That was clear in the retailer's third-quarter earnings report today. Sales at stores open at least one year fell 3.3 percent, and Target said sales at those stores are expected to fall 6 percent to 9 percent this month. All this is affecting profits. Target's quarterly earnings fell about 25 percent to $369 million.

Target CEO Gregg Steinhafel said shoppers are increasingly skittish about spending.

"We've been working very hard at trying to draw consumers into our stores in a very, very challenging environment," Steinhafel said. "But right now the consumer is more than hesitant. They're very stressed right now and we, like other retailers, are all struggling from the inability to inspire people to come into our stores."

Last week, Richfield-based Best Buy spooked investors when company officials said they were seeing rapid, seismic changes in consumer behavior, creating the most difficult climate they've ever seen.

But Steinhafel vows Target is committed to emerging as a winner this holiday season, taking sales and market share from weaker rivals who may not survive. He didn't name namesm but several prominent retailers, including Mervyns, Linen 'n Things and Circuit City, are closing stores and others may follow their lead.

Meanwhile, Steinhafel said Target will remain focused on its long-term strategy of providing quality merchandise at attractive prices.

"Our strategy is essentially, 'expect more, pay less,'" Steinhafel said. "We are not going to dumb down our assortment in this economy. We have to continue to stay focused on innovation and fresh, new, exciting merchandise. Our value proposition issue is such that the majority of what we sell in our stores is very affordable."

And when it comes to prices, Steinhafel said Target will not surrender to Wal-Mart.

"We will meet Wal-Mart on all like and identical items in local markets," Steinhafel said. "That commitment has not changed. We remain very committed to ensuring our prices are rock solid, day in and day out."

But there's only so much Target can do about its situation. "They're doing as well as can be expected," said Dave Heupel, a retail analyst at Thrivent Financial for Lutherans. "You just can't execute your way out of a recession of this extent as it relates to the consumer."

"They and their peers are trying to do everything they can in this environment to mitigate their costs and manage their inventories and figure out what can drive the consumer back to shop," Heupel said. "And a lot of that is just out of their hands."

Analysts expect Wal-Mart will outperform Target in this down economy. That's because Wal-Mart is more focused on basic goods than Target is. Targets gets about 40 percent of its sales from trendy clothing and house wares and other things people will readily do without in tough times.

Other retailers are in a much worse position than Target is. Edward Jones retail analyst, Stephanie Hoff, said department stores are suffering greatly because they sell relatively few things people really need.

"Target is holding up better than department stores," Hoff said. "Because department stores sell nothing but discretionary product, Target at least has a blend."

In the next six weeks or so, we'll see how well that blend helps Target get through what promises to be one of the toughest holiday seasons in years for retailers.

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