Investing Guide to - Target Legacy and Overview

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Legacy Target "Kitting" - original formula for success

2016 Transformation

• Target got a new CEO Brian Cornell who was decisive to revive Target
• Close hopeless Canadian Stores that would take too much to turnaround
• Drive Cheap Chiq core kitting with 12+ new brands with far better designs, and closing some stodgy yet high sales ones.
• Willingness to experiment and drive e-commerce after taking it back in 2011 from Amazon grip on family jewels.

• Drive more foot traffic with grocery - ironically while expensive, what drives sales are core bread, milk, chips on end aisles!

• 2017, management saw the trajectory and took steps to pull Target out of its tailspin. With a $7-billion capital price tag attached, the three-year plan set out was both decisive and bold.

Strategic Choices and Analysis - Alternatives not followed!

STR x : MidRetail Blah would not work - killed Sears!

• Too many all - we sell everything retailers getting hurt
• At high end the wealthy 10% would not stop in them
• Upper end Amazon cherry picks all "parcel-size" items esp. from loyal "prime" tech-lovers
• At low end Walmart would kill them

STR x : Specialty/Category

• As a middle of road it cannot do other than optimize inventory, seasonal turnover

STR x : Low Cost Seller <-- really hard to do - wants to keep quality/Affluent locations

Core STR : KITTING=DIFFERENTIATE DISCOUNT

Cheap Chiq for upper-middle 30% and Millenial

Target for 20+ years has been following the strategic choice of "Differentiated discount": offering a selection of desirable items--a trendy handbag, say, or a novelty watch -- WHICH NO RIVAL IS SELLING.

Target’s secret sauce has been borrowing the best elements of department stores and applying it to a discount big box.

Having unique products that have a strong enough identity for shoppers is essential to keep Target on the comeback trail: the retailer has reported a number of quarter of sales increases, and more importantly, store visit growth is picking up, thanks in large part to its store brands. Those recognizable names help a shopper who can buy Tide detergent at any number of store chains to choose Target because they can get something there they can’t elsewhere.

By 2000s Target had such a chic image that people called it "Tar-zhay" with a faux French accent. ... The Minneapolis-based discounter thrived after reinventing itself as a seller of designer-label clothing at affordable prices. It teamed up with designers such as Alexander McQueen, Proenza Schouler and Zac Posen, and attracted young, predominantly female shoppers with higher disposable incomes than those who usually go to discounters.

• Problem hard to keep cheap Chiq-ly!

  But in 2011 Target's growth began to slow, and margins to shrink. Its designer lines had seemingly lost their sparkle, and the rest of its clothing range never was that impressive. The squeeze on Americans' real incomes did not help, but it struggled to keep up with the rise of "fast-fashion" retailers such as Uniqlo and Zara.

• SRC businessinsider

• stand out

Trend Setter beyond Negotiators/Buyers - Need to Invest in thousands of employees

Target employs a large workforce of aggressive trendsetters who actively seek out the most fashionable brands and merchandise.

Attempts by Wal-Mart and K-Mart have been far less successful.

Design and Quality of Private brands critical to making Cheap into Chiq

Unclear if Target has its own private brands as significant part of non-apparel sales. But it is really trying from electronics to apparel, designed and manufactured by the retailer, the items ran a wide spectrum of categories aimed at a whole new cohort of potential customers.

It was already pretty important esp. to its Cheap Chiq strategy

• kids’ apparel Cat & Jack
• What is great is its baby-box-subscription WAS A HUGE success grew to $2 b, as big as Lululemon Athletica in Just 1 year. Aug'16
• home goods like Pillowfort
• men’s clothes such as Goodfellow & Co (which has an unmistakable J.Crew feeling)
• Opalhouse, an eclectic brand of home decor

They’ve always been very good at understanding trend and being able to tailor the trend to their broad audience,” - Wendy Liebmann, CEO of WSL Strategic Retail.

Hired Mark Tritton away from Nordstrom in 2016 and Junked Tired/Old brands

But getting stodgy and tired

When Tritton got started, he found brands that were adrift, that encompassed too many items and themes and therefore didn’t stand out in shoppers’ minds yet enormous and once very popular brands felt dated.

“We took a long, hard look at our portfolio, and said, ‘This feels old, that feels dated,” -- Tritton

So rather than try to update them, Target decided to start from scratch and junk them, potentially losing billions in sales, but giving itself a clean slate. - Merona - Mossimo:

Tritton rapidly launched new brands with a deeper design focus.

a. It boosted investment in eg Target’s Design Center in Manhattan’s Chelsea district. The company had let a number of its brands grow tired in recent years and getting the part of the business that makes Target ‘Tar-zhay’ back on track was key.

b. Under Tritton, it has launched 12 brands for captive distribution in its stores - a fiery pace!

c. It avoids food and focuses on brands boosting its Cheap Chiq including - Heyday, its first proprietary electronics brand Aug'18 - Wild Fable, a low-cost clothing and accessories brand for teenage and young adult women Aug'18 - Original Use, a male-focused brand with an urban feel Aug'18

Articles about Target's Private Label - retaildive - Target launches another home brand in private label push | Retail Dive

Omni-Channel Strategy is Working - Technology Boost

Ecommerce rapid growth

Target's digital sales grew 41% last quarter compared to the same time last year.

In Black Friday, Prime Day - Target got HUGE PR

FOOD PUSH: milk+bread "quick trips" - replaced dying local groceries

Rest AT HIGH Prices did not work to increase traffic or profits

Target greatly expanded its food offering, hoping to coax shoppers to visit more often--and buy a higher-margin item such as a sweater even if they had only popped in for some milk.

Great theory; didn't work in practice.

HUGE DISTRACTION! "They became too focused on food and consumables, and lost their Tar-zhay cachet," -- Brian Yarbrough, Edward Jones

Did get revenue boost in 2016

In Sep 2016, Target CEO Cornell said,” Our No. 1 problem was traffic.” Meanwhile, Walmart, helped in part by the ongoing remodel of the fresh food areas at hundreds of stores, and improvement to its assortment with more organic food, reported a 1.6% increase. “It’s just going to take time for us to get credit for those changes,” CEO Cornell added.

Mistake: 2013 Data Breach - Lost customers' trust, CEO had to resign

During the pre-Christmas shopping season, the company suffered a massive hacking attack that compromised credit-card and other details of up to 70m customers. Shoppers deserted its stores, and profits plunged.

Curbside Pickup failed

Target tried to separate itself from competitors by expanding "Drive Up," a pickup service that allows customers to pre-order from stores and have employees help load items into their cars.

Shipt Acquisition opens up cost-effective delivery

• Target's moves, including purchasing Shipt last year to speed up same-day delivery, have helped it remain competitive

  Shipt's member base tripled during the last year, and Target said customers spend up to three times more when they order off the platform than shop in stores.

BPR: Self-checkout a good success - well used!

BPR: Credit card 5% Red card good idea but not enough critical mass as pain to manage account

OPPORTUNIST: Store formats, Merchandizing

Filled in gap in after ToysRUs, Sears, JCPenneys struggles

Target has expanded its toy and kids' clothes offerings to capture former Toys and Babies 'R' Us customers.

A string of other retailers like Kohls, TJX, Urban outfitters, and even high end stores Nordstroms and Macys are benefiting from struggles at J.C. Penney and Sears also.

Aggressive seasonal Phone, Electronics, Fitbit trend hopping!

Experiment: Smaller Focussed Urban stores for Millenials

It has only recently begun to switch its emphasis from huge, out-of-town stores towards smaller, more central ones that provide a "click-and-collect" service for online and smartphone orders.

Older Processes and Mistakes

EXIT PAIN: Pharmacy was a CASHOUT to pare losses/make management look good - just lost traffic!

Mistake NOT Listening : Disastrous Canada - US-execs did not understand deep-bargain mentality

Canadian operations began bleeding money in 2013, and eventually new management after 2013 Christmas season of "empty stores" decided all 133 stores north of the border must be shut down.

Basically, corporate-wide Target seems to have stopped listening to its shoppers. But just not Canada but probably corporate-wide.

The American executives it put in charge of the shops in Canada did not understand that Canadians tend to shop "off the flyer": special-offer leaflets are the most effective way to tempt them into a store.

Problem: underperforming shops in America - closing at cost

• All the mistakes ended up in a big wrietoff in Q1'15 of a whopping $5.1 billion.