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Target Corporation (TGT), Dollar Tree, Inc. (DLTR), Costco Wholesale Corporation (COST): Three Retailers on Paths to Growth

According to Marketline, the global department store industry is expected to reach $395 billion by 2015, showing a compound annual growth rate of just 2% from 2010. These stores are still facing issues from the 2008 economic slowdown. The rise of e-commerce is also becoming a headwind for the physical stores. To overcome this threat, companies have to eye expansion. Here is an analysis of three companies which are expanding their presence in various parts of the world, and the investment opportunities these expansions will provide.

Expansion and the REDCard business

Target Corporation (NYSE:TGT)

Target Corporation (NYSE:TGT) has opened 24 new stores in Canada as of the first quarter ending May 2013. Until then, its business operations were confined to the U.S. The company generated revenue of $86 million from these stores, driven by significant customer visits. The overall gross margin was 38.4% due to a product mix of home and apparels. It is focusing on additions in its food, health and beauty range to attract more customers to stores. Target Corporation (NYSE:TGT) plans to open around 124 stores by the end of this year. This Canadian expansion will reduce its dependency on the U.S. It is expected that the revenue from the Canadian market in the second quarter will rise to $318 million from $86 million in the first quarter of this year. Analysts expect that with its ongoing expansion, Target Corporation (NYSE:TGT) will generate revenue of $2.1 billion from Canadian operations in fiscal 2013.

Target Corporation (NYSE:TGT) operates a credit-card business which consists of REDCard products, and includes Target Corporation (NYSE:TGT)’s store-brand debit card, credit card, and Visa card. Customers holding any of these cards get a discount of 5%-10% on purchases, and get free shipping on online purchases. REDCards contributed around 17% to U.S sales in the first quarter, growth of almost 300% in three years. This clearly suggests that the REDCard strategy is help to build customer loyalty, as they get benefits by holding these cards. It is expected that REDCard will contribute around $13.7 billion to sales in 2013.

Addition of freezers and store expansion

The majority of Dollar Tree, Inc. (NASDAQ:DLTR)’s traffic improvement has come from the growth of consumables as it expanded freezers and coolers and overall consumable products. These products help in driving traffic to the company’s stores. Dollar Tree, Inc. (NASDAQ:DLTR) added frozen and refrigerated food to 229 additional stores in the first quarter ending May 4, 2013. It has freezers and coolers in 2,778 stores which represent nearly 60% of its locations. The company plans to add 550 freezers this year to stores, compared to 300 freezers last year. This addition will increase traffic to the stores as this product category serves customers’ basic needs. Currently, food and consumables account for 51% of the company’s product mix. It will also boost the sales of other products, including higher-margin discretionary products like stationery and party supplies.

The company is expanding in both the U.S. and Canadian markets by opening new stores. It opened 92 new stores in total, with 11 new stores in Canada in the first quarter. With these openings, it has a total of 151 stores in Canada. Dollar Tree, Inc. (NASDAQ:DLTR) plans to open around 340 new stores in the U.S. and Canada in fiscal year 2013, whereas it opened 320 stores last year. With this expansion, total sales will grow to $7.96 billion in fiscal year 2013 and $8.73 billion in 2014, up from $7.39 billion in the last fiscal year.

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