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At the new Target store in Rosslyn, Virginia, there’s evidence everywhere of the big-box chain’s efforts to make itself revelant again.
There’s plenty of cycling gear – helmets, seat covers, tire pumps, reflective shirts – because Target has micro-tailored the selection here for a neighborhood that its research found is heavy on bike commuters. A display near the entryway is stocked with the trail mix and freeze-dried fruit they think health-conscious urbanites will want to snack on. And the first thing you see when you walk in is a pick-up counter for e-commerce orders, because the retailer is betting that apartment dwellers might like this option better than having a package left on their doorstep.
Target, the nation’s sixth largest retailer that pulled down $73 billion in sales last year, has different-looking stores today because it is a vastly different company than it was just over a year ago, when it reeled from a slew of problems.
Its expansion into Canada – its first foray outside the United States – was a money-losing disaster. A major data breach had taken a toll on consumer trust. And perhaps most important of all, it had tried so hard to deliver rock-bottom prices to recession-scarred shoppers that it started to lose the personality and chicness that had devotees lovingly calling it “Tar-zhay” in the early 2000’s.
For decades, Target and other large-format chains such as Wal-Mart and Best Buy stormed into America’s suburbs and exurbs, opening thousands of stores and gobbling up more of our shopping dollars and, in turn, becoming something of an economic bellwether. But years of siege from ascendent e-commerce retailers such as Amazon.com – and the demise of chains such as Linens ‘N Things and Borders – have made many analysts doubting the future of the format.
Now, as shoppers swing into the holiday retail season, Target trying to make a fresh case that a vast fleet of 1,800 brick-and-mortar outposts is actually an advantage even as the explosive growth of mobile Web use is reshaping the way we shop.
So the chain, where some 30 million of us go shopping every week, is moving to spiff up its stores and turn them into pick-up hubs and distribution centers for online orders. And under a new chief executive, Brian Cornell, it is looking beyond its core customer base of suburban baby-boomer moms to appeal to millennial moms and dads, urban dwellers and the nation’s growing Hispanic population. The retailer’s sales and traffic have been improving lately, a sign that these steps might be working.
Target’s new strategy is no doubt a nod to an important demographic shift: Millennial shoppers today outnumber boomers and are expected to spend about $600 billion this year. Their preferences have been a key factor behind Target’s move to ramp up its selection of organic food and products with “natural” in the label.
“It really, I think, occurs when moms have their first child and begin to become almost zealots for, ‘Alright, what’s in the product that I’m serving my child?’ ” said Cornell during an interview at the company’s Minneapolis headquarters. “We see rapid shifts from conventional to organic baby food, but then it continues across category. Lite, diet, lean, fat-free, have been now viewed as code for, ‘there’s a lot of artificial ingredients there.’
Target has expanded its Made to Matter line, a collection of organic snacks, cleaning products and beauty items. It is currently testing further changes to its wellness-oriented grocery assortment, and executives have said we will likely see more dramatic repositioning in this category next year.
Reaching millennials has meant not just rethinking product offerings, but also venturing into the urban hubs where many of them have opted to live. Target in October opened four of what it calls flex-format stores, smaller outposts that have a limited merchandise selection compared to a traditional Target. (They used to call these TargetExpress or CityTarget stores, but recently they’ve all been rebranded Target.)
The Rosslyn store is one of these smaller stores, which executives expect many shoppers will use for fill-in trips instead of major stock-ups.
That’s exactly what Lisette Gallegos, 24, was doing when she stopped by on a recent Friday morning to grab a couple bottles of white wine for her office’s Halloween-themed potluck. Gallegos said she’s been coming to the store frequently since it opened near her workplace several weeks ago, picking up office supplies or even lunch.
The assortment may not be big, Gallegos said, but “it’s basically everything you would need in a Target.”
Because the merchandise selection can’t be as broad in a flex-format store, Target executives are trying to tightly curate it. For example, while the Rosslyn store has lots of cycling gear, that’s not the case in the St. Paul, Minn., flex-format store, where they’ve given lots of shelf space to toys and baby products.
This localized approach to assortment is one that Target is now piloting for its bigger stores in hope of ginning up more sales. It could be an especially relevant tactic in reaching Hispanic shoppers, a group that last year had $1.4 trillion in buying power and that Target has also recently wooed by running Spanish-language ads during the hit CW comedy “Jane the Virgin;” signing up Univision host Rodner Figueroa as a “style ambassador;” and having Hispanic millennial moms serve as “the creative muse” for a major marketing campaign for baby products.
Target says part of its struggle in recent years was that the stores weren’t merchandised well, meaning they didn’t have enough covetable items and weren’t showing them off an enticing way. And so that’s why you may have noticed some changes this year as you wandered through the aisles at your local store: The clothing, once confined to cluttered racks, is often styled into trendy outfits and displayed on brightly-lit mannequins. At hundreds of its locations, the home section now a has Pinterest-worthy living room or dining room set-up, much like at Pottery Barn or West Elm, that is meant to spark decorating ideas. In the cosmetics aisles at some stores, a “beauty concierge” awaits to help you pick out a face cream or a lipstick.
When Target executives talk about these efforts, the word they use again and again is “inspiration:” They are trying to turn a trip to the store into more than a routine errand.
Target is particularly focused right now on getting the merchandising right in what Cornell has dubbed the store’s “signature categories,” which include the fashion, home, baby, kids and wellness departments. Cornell would be the first to acknowledge it’s a retail 101-type change, but it seems to be working: Sales were up more than 7 percent in the most recent quarter in signature categories, compared to 2.4 percent for the retailer overall.
But better store displays won’t do much to stem the tide of consumers who are taking their shopping online. So far, Target has not been a heavyweight in e-commerce; in fact, a paltry 2.7 percent of its total sales last quarter were online.
And so now Target is trying to figure out how to reposition its massive stores to help with its fight to become a more serious digital retailing force. More than 450 outposts now serve as fulfillment centers for online orders, meaning store employees walk the floor with carts, picking online orders and then packing them up and sending them off to nearby customers. Target has dramatically cut its shipping time, according to data from customer service research firm StellaService, and this logistics change is probably why.
At a moment where we all seem increasingly hooked on our smartphones, Target is trying to find ways to to incorporate all our swiping and tapping into the in-store shopping experience. That includes testing a technology that would be embedded in ceiling lights that communicates with shoppers’ phones to deliver highly customized offers and other information. (The idea is that this technology can understand your location with more precision than the more widely-used beacon technology, and thus could potentially deliver more useful content.)
Analysts say Cornell, a veteran leader who came from Pepsico and previously served as chief executive of Sam’s Club, has brought new focus to Target.
“I think he’s done an outstanding job so far – but some of it was easy, low-hanging fruit,” said Brian Yarbrough, a senior research analyst at Edward Jones.
In other words, Yarbrough said many people outside the company thought that Target would benefit from reinjecting more of the stylishness it had become known for.
But Cornell has also made some tougher choices, including shuttering that struggling Canada business and slashing jobs at headquarters.
This perception may help explain why investors seem more bullish on Target than on its chief rival, Wal-Mart. In the last year, Target’s stock has risen 25 percent, while Wal-Mart’s has fallen 25 percent. Target’s Bentonville, Ark.-based rival has seen essentially flat revenue in the last two quarters and has projected higher costs. Wal-Mart has lately been taking its fight to Amazon in an especially direct way, answering the e-commerce giant’s massive Prime Day sale with a giant deals bonanza of its own. Target opted not to wade into that summertime retail battle royal.
“It’s easy just to follow your competition,” Cornell said. “It’s really, for us, more important to make sure we’re differentiating ourselves.”
(Jeffrey P. Bezos, Amazon’s chief executive, owns The Washington Post.)
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