The mechanics of a chain reaction

Although it’s been just a year since Target shuttered its 133 Canadian stores, the company has already moved on in a big way, namely rolling out “flexible format” locations in major cities, which means smaller, less traditional Target stores customized to meet the needs of urbanites, including carrying smaller pack sizes and locally relevant merchandise. Target’s senior vice president of store development, Mark Schindele, who works with a 50-person real estate team, answered The Real Deal‘s questions about where the resurgent retail giant is spending its money and its plans to open more than 20 new U.S. stores between this year and next.

What’s the most exciting project your team has been working on this year?

Target’s 2016 capital expenditures investment is $1.8 billion, for enhancements in technology and to modernize operations across our entire supply chain. Nearly $1 billion of it will improve our guests’ shopping experience, whether through investments in our fulfillment capabilities, adding new flexible-format stores, remodeling existing stores or adding self-checkout lanes.

I’m also looking forward to our planned openings in New York and New Jersey, as that area is one of our most important growth markets. We’ve announced six new store openings there for 2016. I’m especially excited about our new Tribeca store. We have a general merchandise store in East Harlem, but it’s exciting to bring our first flexible-format layout to lower Manhattan to serve a whole new market of guests.

How much property does Target own around the country and how much
property does the company lease?

Target owns the vast majority of our nearly 1,800 stores. We tend to move forward with the process that is best suited for a particular site, and we continually evaluate and make strategic decisions related to investments.

A recent study found that homes located near Target stores are worth more than three-quarters as much as those near Walmart stores. Do property values play a part in your location choices or do you think Target has an influence on values?

Target seeks to serve all major markets in the nation, regardless of income level and home values. We locate stores in thriving retail nodes in major markets and work to join shopping centers that will be the retail node for the market. This includes being part of a quality development with financially sound and varied co-tenants. We look at population density and growth, incomes, traffic patterns and more.

Target’s planned expansion into Canada saw some unforeseen challenges. What was the big takeaway from that?

The decision to exit our stores in Canada was difficult. Options ranged from exiting Canada to dramatically reducing the company’s footprint to closing a few stores. The company was not able to identify a scenario by which Target Canada would become profitable until at least 2021. With that all said, we missed the mark from the beginning by taking on too much too fast. Our stores struggled with inventory issues and we were not as sharp on pricing as we should have been.

What kind of markets are you tapping into now?

Our top markets right now include the broader Boston, Chicago, Los Angeles, San Francisco, San Diego, Minneapolis, Washington, D.C., Miami and Philadelphia areas. And, obviously, the broader New York market. We’ve also found that the college market is a notable opportunity.

We’ve recognized the opportunity with our flexible-format locations. We’re able to act quickly on guest feedback in these stores. For example, we recently opened one in Chicago’s Streeterville neighborhood and we quickly heard guests were asking for converters and adapters because it’s trafficked largely by tourists. The Streeterville store now offers a large selection of those.

We have 19 flexible-format locations around the country and we will continue to open additional flexible-format locations, including the 20 stores that have been announced for 2016 and 2017.

There have been reports that Target is looking to transform some of its stores into mini shipping centers. Is that true? How does that fit into Target’s omnichannel strategy?

We often view mobile as the front door to the brand, but stores play a critical role in on-demand shopping. Using our stores as local distribution facilities helps us deliver more consistently and efficiently, ultimately supporting our digital growth.

Today Order Pickup, Ship From Store and Ship to Store account for more than 30 percent of digital sales and are helping fulfill more than one-third of the orders guests place on Target.com. Order Pickup has grown more than 60 percent year over year. And when they come in to pick up, about a third of our guests are shopping the store and making additional purchases, spending nearly 30 percent more than during the average guest visit.

That said, more than 90 percent of our sales happen in-store; our stores are our bread and butter. That’s why you’ll continue to see emphasis on what we call our “signature categories” — Style, Kids, Baby and Wellness. 

This interview has been edited and condensed for clarity.