Features

The Twin Cities' Target Economy:

The Big Red Bull's Eye relies on scores of small- and medium-sized companies to make sure its $65 billion operation continues to hit its mark.

By Dan Haugen

When Target started rolling out expanded grocery sections two years ago in its general merchandise stores, the promotions featured the kind of eye-catching design people have come to expect from the retailer. Three-dimensional fruit bulged from billboards over First Avenue. Produce-filled shopping baskets jutted off bus shelters. Light-rail cars were wrapped in oranges, peppers and other grocery store images.

The creative juice for the campaign came from a branding and advertising boutique just west of downtown Minneapolis. Knock Inc. produced in-store signage and promotions for the PFresh grocery concept, which is expanding at a rate of about 350 stores per year. The agency also creates Target's seasonal decorations, from the holidays to back-to-school displays.

Target is synonymous with good design, but much of the retailer's creative and technical brain trust actually resides outside its Nicollet Mall headquarters. The company routinely hires outside designers and other creatives to help with projects-and not just celebrities like Shaun White or Michael Graves. It goes beyond design, too. From lawyers and consultants to programmers and photographers, scores of small- and medium-size companies play a role in helping Target hit its mark each quarter. It's the Twin Cities' Target economy, an entire ecosystem of companies that owe some of their growth and good fortunes even existence, in some cases to the Big Red Bull's-Eye.

"The Target Effect"
The best place to begin observing this phenomenon is in the inner ring, if you will, along south Nicollet Mall in downtown Minneapolis. Above the summertime bustle of farmers market stands and restaurant patios, thousands of people are carrying out the myriad of tasks it takes to runs the $65 billion retailing chain.

Target employs more than 13,000 people in downtown Minneapolis. That's a lot of lattes and lunches at nearby coffee shops and restaurants. But that number doesn't include the thousands of other professionals who make a living selling goods or services to Target, like Steve Clinton, co-owner and president of Buyers Support Group. The company helps manufacturers get their products into Target stores. It was founded by a pair of former Target employees in 1984 and Clinton bought the company with a partner in 2002. Today, it employs about 25 people. "We eat, sleep and breathe Target, 24-7," says Clinton.

Buyers Support Group has a 10,000-square-foot office on the sixth floor above Target's Nicollet Mall store, in a building known as TP3. That kind of proximity is key in its line of work: Target buyers won't spend 10 minutes wandering through the skyways to get to a meeting. "If it's more than a block or two away, Target's not going there," says Clinton. That turns the office real estate market around Target's downtown headquarters into "a real chess game."

"We could draw a map and put a circle around what we call the Target effect," says Larry Chevalier, vice president of NAI Welsh Commercial Real Estate Services. Overall office vacancy rates in downtown have recently been around 15%, but for the half-dozen or so buildings closest to Target headquarters, vacancy rates hover at or below 5%.

Tenants include global companies like Colgate, Disney and Uniliver. Any major brand you see on the shelves at Target stores is either renting office space adjacent to Target or hiring a representative to be there on their behalf. The spaces mostly serve as satellite sales offices and showrooms, where vendors show products and displays they hope to get into Target stores.

Today it's probably too competitive an area to start from scratch in, but in the past there's been opportunity for entrepreneurs who could assemble the right contacts and expertise around how Target buys products. "Manufacturers want a Target specialist, someone who knows how they operate, what the shipping requirements are, what the billing requirements are, what the labeling requirements are," says Mike Cosgrove, who moved to Minneapolis from St. Louis in the late '90s specifically because of Target.

Cosgrove's previous endeavor dried up after the regional department store chain, St. Louis-based Venture Stores, went out of business. He moved to Minneapolis, found work with another manufacturers rep group, learned the ropes selling to Target, and a few years later negotiated a deal to leave that company and start Cosgrove Sales. He grew the company to a 12-person operation and recently sold it to Moscoe Group as part of a succession plan.

A creative cornerstone
The next ring in the Twin Cities' Target economy encompasses the Warehouse District and all of the advertising, interactive, design and marketing shops that do work for the retailer.

There's no better way to describe Target's role in the local creative industry than as a "cornerstone," says Shawn Sheely, founder and technical director of Analog Interactive, a Minneapolis development shop that produces digital kiosks and mobile websites for Target.

 "They're really great about tapping the local community for solutions on how to solve their problems," says Sheely, who previously managed Target's account for the Olson agency before leaving to restart his own interactive shop about four years ago. Target projects, most of them subcontracted through Olson, account for about a third of Analog Interactive's revenue.

 Tim Brunelle, president of the Minnesota Interactive Marketing Association, says it might be easier to ask who hasn't benefited from Target's presence here. Olson has done much of Target's interactive work for years. Peterson Milla Hooks originally did nothing but Target work and created some of the retailer's most iconic campaigns, including the Target dog. And stories abound about tiny Twin Cities agencies that landed their first big client with Target.

 That was the case with Knock. In 2001, several years before they'd wrap buses, trains and billboards in fruit, founder Lili Hall called up a contact at Target to let them know about her then two-week-old company. She got a call back and before she knew it they were working on a holiday packaging project for the retailer. They've been doing business together for nine years now.

 The impact of landing a client like Target that early on goes beyond the paycheck. Over the last nine years, Jamey Erickson has grown Sevnthsin from a freelance side business into a 12-person interactive agency. His former employer, Target.com, was also his first big client, and having that bull's-eye in its portfolio helped it win work from other large clients like Nike, Best Buy and Pabst Blue Ribbon. "It really showed that we have the ability, as such a small company, to work and execute at a level that a company like Target would expect," says Erickson.

Those expectations can be high. Target can be a demanding client, say those who've worked for them. You don't screw up too many times before you stop getting called back. But the reason local creative shops love to work for Target is that the company understands design and marketing. "You're really working with peers instead of trying to educate," says Jason Rysavy, owner and founder of Catalyst Studios, an interactive agency that develops internal business applications for Target.

 Target accounts for about 20% of Catalyst's revenue, says Rysavy. That's way down from the nearly 80% it made up in the first part of the last decade, when Catalyst worked on a broader range of projects for Target, from website design to traditional branding work. It's a pretty typical story around town. Agencies that once primarily worked for Target have diversified their client rosters in recent years.

A moving Target?
 Even Target's biggest boosters will admit things aren't like they used to be. "There was a time when everybody I knew and every agency it seemed like was doing something for Target at one point or another," says Rysavy. Target deserves a lot of credit for helping to make Minneapolis the creative powerhouse that it is, he says.
It was "amazing," says Shad Petosky of those glory days. His company, Puny Entertainment (previously Big Time Attic), used to earn about half its revenue from interactive and illustration projects for Target. Some of the work came direct, but most was subcontracted through other local agencies.

"They were hiring everybody, and really helping grow small businesses," says Petosky. That's not the case today, he argues. A few years ago, Target started to consolidate many of its vendor relationships with fewer, larger agencies, some of them out of town. (Portland agency Wieden+Kennedy now plays a major role in Target's advertising.) It's also brought more work in-house, launching an internal design agency in March 2008.

Petosky says it makes sense Target would want to consolidate its relationships, but the net result is less work for local agencies, especially smaller ones. Others, though, describe the changes as more of a restructuring than a retraction. Sevnthsin was one of the vendors cut out in a 2008 reorganization. However, Erickson says they continue to receive work from Target, designing and developing online books for upcoming fashion and apparel. What's different is that it's reporting directly to Target's in-house creative team, which farms out work to outside agencies.

 "It doesn't look like it used to, but it's still kind of the same, if that makes sense," says Erickson. Target did not respond to a request for information about the changes, and it was unable to provide numbers about the volume of work it does with local vendors. A similar consolidation has happened on the merchandising side. Clinton, of Buyers Support Group, says there's been a big push to reduce the number of vendors with which the company directly does business. It's making it tougher for new sales groups or product manufacturers to break in, but it's improving what could be a cumbersome process for Target buyers, he says.

Puny Entertainment managed to make up for lost Target work by landing General Mills as a client right around the time the retailer was notifying other interactive agencies about the consolidation. Still, the experience has made Petosky more cautious about growing too quickly for the sake of a single client, he says.

 "We just have to keep our percentages in check and try to find new clients and keep it pretty diverse, which I guess is just good business, but I learned it from watching Target," says Petosky.

 Petosky's experience is telling in that Puny had no problems backfilling for its lost Target work, says Sheely of Analog Interactive.

 "Everybody who's been in that situation has gone on to find other work," says Sheely. "Once you've done that amount of work for [Target], to move sideways to a new client of the same importance and scale is, I think, an easy move if you're quick on your feet."

 That, he says, speaks to the importance of Target in the Twin Cities, as a business partner or a page in a portfolio. Says Sheely: "There's nobody better to work with as far as organization and talent go." 

 

Dan Haugen is a Minneapolis freelance journalist who writes about business, technology and environmental topics. Contact him at dan@danhaugen.com.