By Elijah Brumback Friday, August 8th, 2014

Target Corp., the second-largest discount retailer in the U.S., is searching for a new site for a potential store in Goleta.

It is no longer under contract to purchase the site long planned for a store at Hollister Avenue and Los Carneros Way in Goleta, insiders say, but several options remain open as the big-box retailer’s hunt for alternatives continues.

Negotiations are still ongoing with property owner HCR LLC, a local business entity that has owned the location for more than 40 years. However, amid speculation that Target is actively looking at other sites, the current Goleta project is at a standstill.

“Unfortunately we are out of contract with Target, though they are still interested in buying the property,” said Greg Bartholomew, a broker for Hayes Commercial Group who has been involved with deal negotiations. “Discussions are ongoing, but it’s a really complicated site and there are a number of complicated factors in getting the site approved and cleared for a Target.”

Until issues can be resolved with the property owners, Target intends to withdraw its application from the city once the timetable expires, Bartholomew said. He wouldn’t give any further details about those issues.

The search for a new South Coast site comes as Minneapolis-based Target struggles with flat sales, growing pains in its e-commerce business and continued fallout from a massive security breach last year.

The company reported Aug. 5 that its second-quarter profit trailed its forecast as U.S. sales remained weak and its Canadian operations continued to struggle.

Profits per share in the quarter ended Aug. 2 were 78 cents, excluding some items, less than the company’s projection of 85 cents to $1, Target said in a preliminary earnings statement.

The company has been struggling to boost traffic at its U.S. stores, rescue its botched expansion into Canada and regain shoppers’ trust after hackers stole millions of customers’ data last year. In late July, the retailer chose PepsiCo executive Brian Cornell as its new CEO, tasked with turning the operation around.

Target has been “giving away stuff below margin or at a lower margin to drive traffic,” Poonam Goyal, a senior retail analyst for Bloomberg Intelligence, said in an interview with Bloomberg News. “It’s driven by promotions, which can’t last forever. They need to bring back traffic that will stay beyond promotions.”

‘A great market’

Target’s public relations department is holding its cards close to the chest when it comes to discussing the retailer’s South Coast plans.

“Goleta is a great market for Target and we continue to consider new opportunities to serve guests there. However, I have nothing to share at this time around plans for a new store,” company spokeswoman Kristen Emmons said in an email to the Business Times.

While the statement doesn’t confirm the company is pulling back from the current plans, it is very similar to what Emmons told the Puget Sound Business Journal just days before plans to develop a 137,000-square-foot store in Bellevue, Washington, were scrapped.

“Target currently does not have any information to share regarding a potential new store in Bellevue,” Emmons told the Puget Sound Business Journal last month. That message came just days before Target issued the following statement regarding the Bellevue project: “After careful consideration, we have determined that, at this time, other opportunities within the community are not the right fit for Target.”

It took 10 years for Target to move forward with a store in San Luis Obispo, said Clarice Clark, a principal at Lee & Associates who helped broker the retailer’s deal for its location there.

“As a city, you really have to have the right product for the big-box guys to move in,” Clark told the Business Times. “The proposed two-story project they’re looking at [in Goleta] is really non-prototypical. Those types of projects are usually located in more dense urban areas. To me, it feels like something that wouldn’t really fit.”

The company is likely to investigate at least a couple of alternatives, she added.

“I know that they continue to look at other options that might be easier and better sites,” Hayes’ Bartholomew said. “I’m aware of a few they have looked at, but not aware of any other negotiations for  other properties they might be considering.”

Goleta Planning Director Jennier Carman said city planning staff haven’t heard anything recently from Target regarding its plans and that the retailer’s application is still active. “What we’re waiting for is for them to put down a deposit on the [environmental impact report],” she said.

‘Essentially flat’ sales

Sales at U.S. Target stores open at least 13 months were “essentially flat,” and profit margin was narrower than expected because of price reductions to entice shoppers who “continue to spend cautiously,” the company said in its preliminary second-quarter earnings report.

As the firm tries to compete with online rivals such as Amazon.com, it has made significant investments in new technologies, but those expenditures haven’t generated much return, it said. It has therefore pushed on with building new brick-and-mortar stores in targeted areas. “Many of our expected new store sites are located in fully developed markets, which are generally more time-consuming and expensive undertakings than expansion into undeveloped suburban and ex-urban markets,” the firm said.

Target’s share price has dropped 8.3 percent so far this year.

— Bloomberg News contributed reporting.