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Target eyes downtowns as it moves East

By JIM McCARTNEY

MINNEAPOLIS -- Discount retailers have largely made their living off the suburbs. Now Target is trying a new, essentially untried market for its stores -- the middle of a major metropolitan downtown business district.

The discounter will be increasingly breaking the mold of its previously favored locations as it continues its march towards the relatively congested East.

Target Stores is anchoring not one but two major projects in downtown Minneapolis, about a block away from each other on Nicollet Mall. These projects house, respectively, a discount store innovative both for its location and its configuration, and a new headquarters office complex. Both are being developed by Ryan Cos., Brooklyn Center, Minn.

Target has agreed to build a two-level, 120,000-square-foot store as part of a 14-story, 500,000-square-foot office complex on the west side of Nicollet Mall, between Ninth and Tenth streets.

The move marks a departure for Target, a division of Dayton Hudson Corp., based in Minneapolis. Although it has downtown discount stores in Pasadena and San Diego, Calif., Target officials consider the new downtown Minneapolis stores an example of a new, flexible format that can be located in dense urban areas.

Shoehorning a large discount store into a tight urban space is a challenge that Target is facing quite often these days as it moves into the Northeast, the final region of the United States left for it to conquer.

"We consider it one of our unique properties -- it won't be a prototype that we'll roll out" around the United States, said Susan Eich, a spokeswoman for Dayton Hudson Corp. Target prefers to locate its stores in suburban sites with room for one-level buildings and ample parking, Ms. Eich emphasized. But that will change as time goes on.

"You'll see a lot more unique properties -- ideal sites are hard to obtain," she said.

But some aspects of Target's design and approach in the downtown Minneapolis store could be replicated in other new stores. What's more, a successful store in downtown Minneapolis could encourage the chain to build stores in other downtown markets, Ms. Eich said. Although real estate costs are higher in downtown areas, so is traffic volume. And aside from the thousands of workers who commute to downtown Minneapolis, the number of people choosing to live in downtown Minneapolis is increasing, Ms. Eich said.

"The challenge is how do you make it convenient for them?" she said. "The downtown environment does affect a number of aspects of the store."

Shopping patterns will be heaviest over the lunch hour and after work, so the store will have to staff up for those periods, she said. The store also will offer a parcel pickup service for those who want to gather their purchases at the end of the day, rather than lugging them back to work.

Although the chain will modify some product offerings, the downtown Target store will offer 90%-95% of the merchandise its sister stores offer.

"Typically, only about 5% to 10% of the items in our stores are customized," she said.

Minneapolis officials are so eager to have a discount store that they have agreed to provide substantial public support for the project, with the city and its development agency pledging about $30 million in public financing.

"Nicollet Mall needs more moderately priced retail, and Target moves us close to that goal," said Rebecca Yanisch, executive director of the Minneapolis Community Development Agency.

But Target's biggest challenge, at present, has little to do with downtown discount retailing. The store is part of a project that, at presstime, was at the center of a protracted legal dispute.

The site for the project includes a portion that is owned by Minnetonka, Minn.-based Opus Corp., a crosstown rival of Ryan Cos. Opus had hoped to build its own office tower there, and at one point considered luring Wal-Mart as a retail anchor for a proposed 30-story office tower.

Ryan's plans, however, were approved by the Minneapolis City Council in March 1997. A month later, the council agreed to use its power of eminent domain to secure the property, and initiated condemnation proceedings against Opus.

In June, Opus sued the city, claiming that Ryan was about to receive an improper tax subsidy. Opus officials argue that tax increment financing (TIF) is an improper financing tool for the project. TIF is designed to be used for projects that would not have been built without the subsidy, Opus argues in its complaint filed in Hennepin County District Court. Opus claims it would have built a similar project on the land without such a tax subsidy.

Ideally, Target would have preferred to be the main tenant in the office tower that accompanies the store. Given the uncertainty, it decided to go ahead with its own new tower about a block away.

Ryan Cos. has begun construction on a 605,000-square-foot, 14-story tall office building for Target at the southwest corner of Nicollet Mall and 10th Street. Dayton Hudson's primary growth vehicle, Target will continue to lease its present space in the Multifoods Building in downtown Minneapolis, its headquarters.

The company plans to open about 65 to 70 Target stores each year, with as many as half of them in the Northeast. The chain now has 769 stores in 39 states, mostly in the Midwest, South and West, compared with 1,945 U.S. stores for Wal-Mart and 2,134 for Kmart. With 1996 revenues of $17.8 billion, Target accounts for about 70% of Dayton Hudson's total sales.

The new office complex will be ready for occupancy this November, and Target anticipates taking virtually all of the space. Between the new building and the Multifoods Building, Target will have about 4,000 employees in downtown Minneapolis -- and that's before the discount store opens.

"We've had such fast growth that we plan on needing the space," Ms. Eich said. Neither building will be referred to as the "headquarters" building.

In June 1997, Target stores also purchased another piece of nearby property -- the Fiske Building, which could be the site of a second phase to the project. Current tenants, including several popular restaurants, have been told that at the least they can ride out their leases, which don't expire until the year 2000.

"We don't have any definitive plans for the site," Ms. Eich said. The property would be for more office space, not a backup site in case Target's plans for a new discount store down the block fall through, she said.