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Convenience and value on menu for Q3

Shoppers are hungry for convenience and value and Target continues to deliver both.

The fact that more customers are shopping Target more often has everything to do with decisions put in place several years ago to dramatically expand food and consumables and implement a loyalty program that rewards shoppers with 5% savings. The combination of those two strategies – along with consistent execution of the company’s differentiate merchandise offering – has yielded 11 consecutive quarters of positive same store sales growth with a 3% comp increase expected during the third quarter.

"We are now in the third year of our remodel program, and approaching the two-year mark since the nationwide launch of 5% Rewards," Target chairman, president and CEO Gregg Steinhafel said during the company’s second quarter earnings call. "We have driven billions of dollars of incremental sales while maintaining our retail profit margins. And, just as importantly, as a result of these programs our store base is fresher and more relevant than ever, and our guests have developed a deeper loyalty to Target."

The significance of loyalty is impossible to overstate. When economic conditions are more favorable and cash is sloshing about the marketplace even marginal retailers appear to have loyal customers. True loyalty doesn’t become apparent until consumers become more discriminating about where they choose to shop and how much they spend, as has been the case now for several years. That’s why Target’s differentiated brand, shopper frequency initiatives and growing loyalty program are enabling it to prosper as others flounder outright or struggle to grow.

Meanwhile, Target is confident of more participation upside in its 5% Rewards program. The nationwide penetration rate is now at 12.8% a little less than two years after it was launched. However, in the Kansas City test market where testing began a year before the national rollout the penetration rate is expected to reach 20% next year and CFO John Mulligan believes the company could see a similar level achieved nationally in the coming years.

"Given that the nationwide rollout has closely followed our experience in Kansas City, continued growth in that market provides all of us a clear road map for where nationwide penetration will likely be a year from now," Mulligan said.