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Walk into Target's newest prototype--dubbed P2004--and there's a noticeable difference in the way the retailer is choosing to go to market in the consumer electronics and home entertainment categories.

Shifted to the rear and center part of the store from its previous home in a front corner, the department is positioned to make better use of adjacencies and allow for increased expansion in either direction. Toys, sporting goods, baby and children's departments ring the new area, effectively grouping family and entertainment properties together.

Target's strategy here is consistent with that in all its categories: offer better quality, differentiated merchandise in a mix of what people need and what they want.

"They're pretty focused," said Stephen Baker, director of industry analysis, the NPD Group. "They try to stay out of the real margin-beating products and categories, like PCs and monitors, and try to concentrate on items where they can provide a value to the customer."

Part of that means simply providing the basics, like any good discounter: small- to medium-sized TVs, phones and accessories of all types, video and music software, and cameras.

But Target has selectively chosen areas that fit its customer base and the company mission--going deep in digital cameras early in the adoption cycle, adding in handheld computers, portable digital music players and camcorders before they had officially reached mass market penetration levels. In fact, digital cameras only reached that level in 2003, according to the Photo Marketing Association, long after Target had expanded its assortment of photo printers and ink cartridges to better take advantage of high-margin accessory sales.

Target's early participation in these niche markets has much to do with its core customer, which, according to the company, skews more upper income and better educated than its closest competitors in the discount channel. But these same characteristics also limit the depth the retailer can go in the CE category.

Target's audio and video selection is relatively limited. The retailer was late to the DVD player market and has never ventured into large screen TVs or sophisticated home theater offerings. "Partly because, as [Target] was growing up, these categories tended to be lower margin," explains Baker. "Their customer base, the upscale demographic, was already being attracted to specialty stores like Best Buy."

Additionally, unlike Wal-Mart, Targets are mostly located in urban and suburban markets, where there are typically multiple specialty chains--often on the same parking pad as the discounter. Wal-Mart has the luxury of operating a high number of stores in more isolated areas where they are more likely to be considered a primary source for CE products.

Another point Target has working in its favor is its popularity among female shoppers, particularly for non-traditional female categories. Electronics and home entertainment reflects this positioning, with more stylized product including home office products from Michael Graves, mobile electronics from Eddie Bauer and most obviously, the Liv line from Sony, positioned directly at the women's market.

As part of the Consumer Electronics Association's Women and Technology program, aimed at better understanding this underserved demographic, eBrain Market Research conducted focus groups in December 2003, asking women how they felt about CE products and the shopping experience. When asked where they prefer to shop for electronics, Target was noted quite often as the store of choice.

"We know from the research that women want the same thing that men do," said Tim Herbert, eBrain's director of businesses development. "They want selection, they want the product to be in stock, they want a user-friendly store and a helpful sales staff. Target is trading off a little bit in terms of selection, however, they do get high marks in terms of being a very user-friendly store. It's laid out very well and you're not going to find music blaring like in big box specialty stores."

If and when Target decides to migrate up in technology, "They don't have far to go," said Baker. "Their customer base is a lot more like a Best Buy than Wal-Mart's is and they can take advantage of that. Gradually as the markets their opportunities will grow."