Target (TGT) is operationally a vastly different retailer today than one year, two years and, of course, five years ago.
That is in part due to the work by long-time Target executive and current COO John Mulligan. The soft-spoken Mulligan has worked diligently behind the scenes to allocate Target’s big $7 billion in investments over three years to the most productive areas. Mulligan’s efforts have ranged from re-thinking how newly renovated Target stores should be laid out to scaling the company’s same-day delivery service Shipt (acquired in 2017) nationwide.
“We've made the stores the center of what we're doing in digital. They've really driven the growth. We went a little bit different path than most retailers. We went down the path of the stores are going to do the fulfillment. Huge advantage for us,” Mulligan told Yahoo Finance in an interview inside a Target store near its Minneapolis headquarters.
In 2019, Mulligan reworked Target’s employee staffing model in an attempt to drive more sales. Employees now have ownership of individual departments, offer more in-depth customer service and also service orders placed online.
Mulligan said the shift in how Target staffs its stores has been instrumental in its impressive year.
Yahoo Finance talked with Mulligan about his operational changes this year and what lays ahead for the 2019 Yahoo Finance Company of the Year award winner. What follows is an edited and condensed version of our chat.
Yahoo Finance: I think to understand the Target of 2019, the sales gains, the profit gains—we almost have to go back to one of the last times I talked to you in 2016 at an analyst day before all these changes took place. Did you have any sense on how daunting it would be to fundamentally change a company like Target?
John Mulligan: Well, you know, I'm glad you started there. Because I think that is where it started. In 2016, we were testing a lot of different things. We were testing remodels. Out in Los Angeles, we had done 25 stores—kind of put all our latest thoughts in there. We were working hard on improving pick-up in the store, just how a team member goes through a store and picks to improve the reliability of the order. If we were going to fulfill a lot of stores, we had to be able to do that reliably.
We had a small number of small format stores in urban settings, college campuses, that we were learning from and figuring out how to run. And from there, you know, in 2017, we kind of announced the plan. Stores were going to be the thing. That's how we were going to grow as an organization.
I think we're really proud of the work the team did. I think we've executed. And every day in retail, you've got to execute. And meanwhile, we've built new capabilities and introduced those. And nowhere is that more evident than in the store. We've remodeled 700 stores since then.
Yahoo Finance: That’s a lot of stores.
Mulligan: Yeah. And they may look different, right. And scaling from doing 15 remodels in 2016, to 300 last year and this year—you know, just think of the capabilities of that. And then modernizing the way our store teams work in the store. They're doing their job. They're filling the shelves. They're taking care of guests. But meanwhile, we're asking them to learn new behaviors, to really own your area. And if you own beauty, when a guest comes in, you have to be able to talk to them about beauty products.
Yahoo Finance: How difficult it is to drive that type of turnaround. A retailer's open from a set amount of time in the stores—but your website is open around the clock.
Mulligan: We've made the stores the center of what we're doing in digital. They've really driven the growth. We went a little bit [of a] different path than most retailers. We went down the path of the stores are going to do the fulfillment. Huge advantage for us. We're very close to the consumer. It allows us to ship to them very quickly. It allows us to be more economical. It's much cheaper to ship from a store when you're close.
The other thing it has done is move us, really, front and center into same day delivery. Order pickup, drive-up, and Shipt are the three fastest growing ways we deliver to our guests. They're far cheaper than shipping out of a store. They're the highest rated services we have.
And so order pick-up we've been doing for five years. Last quarter it grew over 50%. Drive-up grew 500%. So, great opportunity for us to continue to expand there. But all of that digital growth and the great work of the digital team, those two together—to get a great assortment online and then be able to deliver it quickly—has been how we've won in digital over the past several years.
Yahoo Finance: I definitely want to go through each service, because I view it integral to Target's story. But what has surprised investors I think is that all of these things have come together seemingly at the flip of a switch this year.
Mulligan: Well, not the flip of a switch. And like I said, a lot of this we were testing in 2016. And when we came to the financial community in 2017, we said, we're going to invest a lot of money. We're going to invest capital—$7 billion of capital. We're also going to invest in the P&L. So we took some profit out of the picture and invested that back into our team. We invested in wages. We put hours back in the store. We invested in a lot of training for our store team members.
And so I don't think it seemingly just came together. It's the work of the team over several years. And you know, again, a great example of that is what we call stores modernization. Changing the way we operate. We started that four years ago. We changed the actual physical operating model in the store this year in July. So it was kind of like the final switch that we turned on.
But we were building things underneath that. Teaching our teams how to own their business and providing training if you're in beauty or electronics or food. We had to have team members that understood food. So you build the capabilities... The way they have adapted to the change has been remarkable.
Yahoo Finance: Explain to us the changes to the staffing model that you have made. It has gotten a lot of attention.
Mulligan: I think we started with—if we're going to build this great store, and we're going to remodel it then we need to have our team focused on service for the guests. We need to schedule for the guests. We need to move from a task-based service model, which is what we were. Get the tasks done, which in an operating environment, that's what you do. You get things done. But we wanted our team focused on helping the guests.
And we used to run a very general athlete model. If you could check out, you could be working in food the next day. And the next day, you could be in the back room. Now we want you very focused. If you're a beauty team member, you're going to hang out in beauty. And we will help train you on beauty, but clearly you have some affinity for it, because you want to work there.
And then you spend your day there. And you understand the inventory that's all around you. And you know what's in the back room. So, if there's an out of stock, you can go get it. And if it's not back there, you know who to contact so you can get more inventory.
Yahoo Finance: Is this the next generation retail staffing model?
Mulligan: We think so. For our business, we think that's right. You know, we run a business that is five businesses. We run food and beverage. We run apparel. We run home. We run hardlines. And then we run essentials and beauty. And they're all different, and they have different skill sets.
In electronics, you need a lot of product knowledge. In beauty, you need a lot of product knowledge. In food and beverage, you've got to understand produce. In apparel, it's all about style and how you merchandise it.
And so we wanted that specialty, that focus, and that training for each one of those areas, and have those individuals feel like they own it. And so for us, that was a big change. Like I said, several years in the making. And we finally flipped the last switch this year.
Yahoo Finance: There has been a little bit of pushback from employees on the staffing model. How do you communicate to them to get on board.
Mulligan: Yeah, I think change is hard. We had one way of doing things for a very long time, a very long time. And change is hard. And that is why we took time—you know, years of training and built capabilities.
And at the end, when we did switch the staffing model, we had a conversation with every single team member about why the hours were changing. We needed to be here when the guest is here. It probably means more evenings. That means more weekends.
And not just for our team members, but for the store leadership as well. That they had to change their hours and when they were in stores. When we brought people along, I think we've seen our guest and our team member engagement stories remain very strong across the company. There are always some team members who the change is harder for. We continue to work with them to help them move through the stages of that and then hopefully be successful with this.
Yahoo Finance: I view two areas of vital importance to your turnaround at 2019. It's the food department. I know it's been an area of focus for you. I walk into a Target store now, I can buy fish. I can buy steak. That wasn't necessarily the case a couple of years ago. How important has the turnaround in grocery been to Target's comeback?
Mulligan: Well, I think food is important, but it's one of many areas we focused on. But I think the work the food team has done over the past several years, we're really proud of. The quality of our produce has improved markedly. We have team members in-store who are knowledgeable about what's good and what needs to be just taken off the floor and about how much to order.
And so we have a little bit more expertise at headquarters around food. We've hired regional food team members to help us interact with people who do deliveries into our stores. So many different elements of the food business have improved. We're proud of that.
Still more to do. There's always more. We have a lot more work to do across the store.
Yahoo Finance: Like what?
Mulligan: There's always more refinement. We can get better at how we operate. I think an area like drive-up. Drive-up's growing 500%. We're really proud of that. It's our highest rated service.
But the one thing we hear from our guests is that they would love to have temperature controlled food. Can I just get a gallon of milk or some eggs with that order? And so we're testing that in the Twin Cities. And you'll see us work hard on starting to scale that next year. So there's always more work for us to do.
Yahoo Finance: Are you taking market share from the supermarkets?
Mulligan: I think across our business we are taking market share in every category, every one of our five big categories. And we're proud of that. And I think that's the game right now. We have to continue to grow and gain market share. And that's a metric that we consider very important.
Yahoo Finance: How important has Shipt been to you? It's an acquisition you made late in 2017. A lot of the people I talked to on Wall Street had never heard of Shipt.
Mulligan: Shipt has been a great business. And we really look at that two ways. One is the Shipt business itself. They run a great marketplace. They provide that service for many retailers. That has continued to grow. And we're excited about where they can take that.
And then there's Shipt for Target. And we're really excited by that. Just recently, we added it to Target.com in the second quarter. A few weeks ago, we added it to the app. You know, it is growing triple digits at Target.
A lot of talk about going from two-day to one-day delivery—we're focused on same day delivery. Order pickup, drive up, and Shipt. And again, those are the three fastest-growing services. They're also the three most economical services for us to provide.
Yahoo Finance: What's the evolution of Shipt?
Mulligan: I think we'll see. Right now we're focused on continuing to build a great business. I think for Target, we continue to see the opportunity to expand the assortment. Doing better merchandising on their site is an opportunity. Continue to integrate them with us a little bit tighter.
For our other merchant partners, they have different needs. We'll continue to evolve to meet the needs that they have in their businesses. So lots of opportunity for Shipt to continue to evolve and continue to grow.
Yahoo Finance: Is same day delivery now table stakes in retail?
Mulligan: We think it's getting there. Absolutely. We think same day is incredibly important. I think consumers have a lot on their plate. It is about getting the consumer what they want, when they want it, how they want it. And that type of flexibility we think is table stakes.
Yahoo Finance: Looking forward, how do you try to repeat your 2019 performance in 2020?
Mulligan: That's what we do, right? That's why we get paid is to continue to grow the business. I think, from my perspective, the great thing is our team is engaged. We have built great capabilities. And if you have capabilities, then what you put on top of them you can be flexible about.
And I think store fulfillment is the best example that. I talked about 2016. We were looking to refine how we pick, just how we pick products in the store from a team perspective. All the things we've put on top of that. We've got two-day shipping. We've got Shipt. We've got order pickup. We've got drive up. I don't know what the next thing will be, but there'll be another thing. All of that built on one capability.
And so we've built capabilities over the past several years, in supply chain, in properties around remodeling stores, in merchandising. You know, we kind of refined some of the things that have been historically very strong for us around brand development, product development, sourcing. So with these capabilities, we'll go where the guest takes us. And that allows us to continue to grow and grab market share.
Yahoo Finance: What's the next decade look like for Target?
Mulligan: Well, if I knew the next decade, I would be in one of your former jobs, picking stocks.
But I think as long as we are focused on where the guest is going, Target can be very successful. In 2016, my boss Brian Cornell would sit around and say, hey, we've got a great brand. We've got a great team. And we got a great balance sheet, which means we can invest. Who wouldn't want to be us?
And that's true today. We've got a great brand. We've got a great team. We got great capabilities. We got a great balance sheet to invest. Who wouldn't want to be us? We have a great opportunity to continue to grow.