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Evolving Stores

Of the 1,800 stores Target is operating today, it plans to remodel more than a 1,000 by 2020 (600 by 2019). It also plans to operate 130 additional small-format stores by 2019. The target for this year is to remodel 110 stores and open 30 small-format stores.

The remodeling entails reorganization of the backroom so it can double as a hyper-local delivery hub. Now, this space is being optimized to build a ship-from-store capability (shipping from the nearest store when a customer orders online to minimize delivery time and cost). Target has said that 1,400 stores already offer this capability and by 2019, all stores will have it.

All stores already support the order pickup facility (where a customer chooses to pick up the item at the store after ordering it online). Ship-from-store and order pickup are already taking care of more than half the digital sales volume today although it’s expected to peak during the holidays.

The smaller format stores are being opened in densely populated urban areas and college campuses and they are open for long hours (7AM to midnight). The goal is to allow customers to make quick purchases of every day essentials-type of things. On college campuses, the goal is to lure young consumers to the Target brand. They also operate as pickup centers for online orders.

Creating a Smart Network

The revamped stores and online channels are increasingly woven into a smart network that allows Target to offer many fulfillment options. So customers can now opt for in-store pickup; drive-up (where a store employee takes the order out to the customer’s car); same-day delivery in select locations and for select items including fresh groceries; next-day delivery; Target Restock, where the company takes orders for essentials up to 7PM every day for delivery on the following day; and Google Express. As the supply chain gets smarter, the in-stock position improves so it is also able to expand the number of products eligible for next-day delivery.

Focus on Employees

Retail has forever been about having the right products in the right place and at the right time. But now, it isn’t just about products anymore because people are increasingly also looking for a good experience. Therefore, it is important to retain good employees with the requisite knowledge and experience. It therefore started investing in its people. The company recently raised the minimum wage to $11 an hour as part of an initiative to raise it to $15 an hour by the end of 2020. It is also investing in training employees for better guest satisfaction.

More Than a Dozen New Brands

The private label market is exploding with supermarkets, drug chains and mass-merchandise stores like Amazon all jumping in. The concept is also a very big deal in Europe where it was used effectively by German chains Aldi and Lidl.

To tap this opportunity, Target has said that it plans to launch 12 new store brands. The advantage of these brands is that customers can’t get them anywhere except from Target, so once brand loyalty is built, it results in repeat customers. Other advantages include a greater control over product creation, time to market and pricing, translating into stronger profitability.  The fact that millennial shoppers are less attached to the brands their parents swore by makes this that much easier to do.

Target’s private labels focus on its most profitable apparel and home categories and include the kids clothing line Cat & Jack, the kids bedding and home collection line of more than 1,200 pieces of furniture (including 12 themes) Pillowfort, the baby brand Cloud Island, women's apparel brand A New Day, menswear line Goodfellow & Co., homewares brand Project 62, athleisure brand Joy Lab and home and lifestyle brand Hearthand Hand with Magnolia. Cat & Jack, which has been around the longest, racked up $2 billion in sales in its very first year since launch. With eight of the twelve already launched, Target will see the effect in the holidays and through 2018, when we’ll know more about how they did.

There are also four more to go, and according to recent trademarks, they could reportedly be "Universal Thread" or "Universal Thread Goods Co.," United Thread and an Obvious Foods rebranding. The company generally focuses on style, wellness, baby and kids products, so its private labels are unlikely to venture too far from these.


All of the above point to the fact that Target is poised for some big changes in 2018. It has most of the pieces in its turnaround plan on the board, now it just needs to tie it all together. Two metrics are particularly interesting in this respect: digital sales, which continue to grow at strong double digits despite tougher comps and two straight quarters of traffic growth, indicating that customers are returning to Target.

As far as the Amazon effect is concerned, it’s worth knowing that ecommerce is still just 8.1% of total retail sales, according to the commerce department. Yes, it’s causing disruption, but Target has finally jumped on the bandwagon and the changes it has embraced (along with suitable advertising) should help the company get back on track. Add to that the fact that not all retailers will be able to weather the storm so Target has scope to grab share.

Note that the company also returns cash to investors both as share repurchases and dividends. So the fact that it is catching up with leading trends increases confidence that there is no risk to the income.

The way things stand now, it does appear that Target is entering buy territory.


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