Stores Remain At the Center of Target's Strategy
Target (NYSE: TGT) has transformed its brand, both in ways consumers can see and behind the scenes. The company has mixed up its merchandise, rolling out a number of company-owned brands including Chip and Joanna Gaines of Fixer Upper fame.
The bigger changes, however, may not be as visible to consumers. Target has been working since February on a number of key initiatives in addition to its push toward private label brands. The chain expects to invest $7 billion over three years in a number of areas alongside those product lines including:
Blending its digital and physical shopping experiences
Reimagining existing stores and the labor model to operate them
Offering new fulfillment options to make shopping and returns more convenient for customers
Opening new small format stores in dense urban, suburban, and college campus neighborhoods
The company has also committed to putting an additional $1 billion of this year's operating margin back into the company. Target has done that to allow it to move fast in a market that's rapidly changing, acknowledging that it has to adapt to meet existing consumer demands as well as the evolving needs of its customer base.
Target has used its small-format stores in densely populated markets including New York City. Image source: Target.
What is Target doing?
First, the retailer has sought to give customers more ways to get what they want. This includes programs like Target Restock, which allows customers in select markets to order a box of items from a list of thousands of household staples for next-day delivery for $4.99. In 2018, Restock will expand to the entire country.
The chain has also tested and rolled out same-day delivery in four locations in New York City. Curbside pickup is available in 50 locations in the Twin Cities area, and Target has also expanded its ability to ship online orders from more than 1,400 stores this holiday season, up tenfold in just the past few years.
"You'll note that for each of these fulfillment options, our stores play the key role in delivering the experience," said CEO Brian Cornell in the Q3 earnings report.
In addition to using its stores as hubs for a variety of different fulfillment models, Target has also increasingly relied on store personnel to optimize its operations. To facilitate that, Cornell said, the company has been adding hours and shifting roles for some staff members.
"We've invested in the rollout of a new operating model with more specialized roles that support stronger execution and deliver more product expertise on the sales floor," he said. "We've invested in training to elevate the guest experience, moving away from task-driven models to a guest-focused mindset. And we've invested in wages to ensure we can attract and retain the right team members."
Stores are changing too
Target's stores are also changing, and not just in their role as tools to help deliver an omnichannel shopping experience. The company has tested technology to make it easier for consumers to find what they need while they are in a store, along with revamping store layouts to put items in the places that are most logical for consumers.
The chain plans to remodel more than 1,000 stores by 2020. By the end of 2019, the company hopes to increase its small-format store count from roughly 55 now to 130 nationwide.
Lean to your strengths
Target isn't a digital-first company, but that's not a bad thing. The company hasn't ignored the changing market. Instead, it's addressing consumer demands for convenience by leveraging its network of stores.
The chain is building a true omnichannel operation where it can offer consumers whatever mix of shopping they want. This isn't going to be a quick fix and it remains to be seen exactly which initiatives customers will respond to. Still, while there will be some mistakes along the way, Target has embraced the new reality and that should ultimately put the chain in position for long-term success.
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Daniel B. Kline has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
