Target’s Retail Strategy is Winning, Here Are 3 Reasons Why
By Tricia McKinnon
In an era of heightened consumer expectations and more intense competition from the likes of Amazon many retailers are furiously trying to figure out how to reinvent themselves in an attempt to regain relevance. One retailer that is succeeding in these increasingly competitive times is Target. Target’s strategy focuses on better private brands, expanded online product selection from third party sellers as well as customer friendly eCommerce delivery options. Other retailers should take notice because Target’s strategy is working. In Q1 of 2019 Target’s same store sales were up 4.8% and total revenue was up 5% from $16.78 billion last quarter to $17.63 billion this quarter. Here’s a look at what Target has been up to and why it’s driving Target’s success.
1. Target is investing in private brands to drive customers into its stores and its working. Back in the early 2000s Target was known for its cheap chic clothing but by the time the recession hit in 2008 and 2009 Target had lost its way. Once popular private brands such as Merona and Mossimo began to look dated. Repositioning a brand can be difficult so instead of updating those brands Target decided to discontinue them. Target did something that is difficult for most companies to do, it took the risk of losing the existing sales from those brands in order to create something new. Over the last few years Target has introduced 20 new private brands.
Target’s Cat & Jack private label kids clothing line, for example, became a $2 billion brand within only one year after launch. Like most retailers private brands help to differentiate a retailer by giving customers a specific reason to choose one retailer over another. Costco, for example, has found great success with its Kirkland brand. Macy’s plans to increase sales of its private brands and excusive products from 29% in 2016 to 40% J. C. Penny plans to increase private brand and exclusive product sales from 50% in 2018 to 70%.
2. In search of additional streams of revenue and profitability Target is also leveraging its online platform. Similar to Walmart and Amazon Target is allowing third party sellers on its website. The program which was launched earlier this year is called Target+ and it will allow Target to have an expanded product assortment on its website. To get started with the initiative Target focused on its home, toys, electronics and sporting goods categories. Unlike selling on amazon.com or on walmart.com which is much easier, selling on target.com is by invitation only.
Some of the brands that are selling on target.com are sporting goods retailer Mizuno, educational toy maker Kaplan and keyboard company Casio. Under this program, Target+ merchandise is purchased from third party sellers and shipped directly to the customer from those sellers. Speaking about the push to have third party sellers on its website, Rick Gomez, Target’s Chief Marketing and Digital Officer said: “we see this as a long-term opportunity to drive profitable growth.” “This is intended to be a very curated and select group of products and brands.... we are reaching out to the brands we want.”
3. Target has shown strength in eCommerce by focusing on services such as buy-on line and pick up in store. With 75% of the US population living within 10 miles of a Target store, Target is able to leverage its store network to provide a desired service in a way that Amazon can’t. For example, Target provides a Drive Up service which allows customers at over 1,100 Target stores to pull into a Target parking lot one to two hours after making a purchase and have Target employees bring a customer’s purchase directly to their car. This free service is popular with more than two million orders. This service is also a key advantage vs. Amazon which only has 475 Whole Foods locations that it can leverage for eCommerce order pick up. In total Target has 1,850 retail locations and Walmart has more than 4,700 locations in the US that it can leverage for this type of omni channel experience. On Target’s Q1 2019 earnings call, Target’s CEO Brian Cornell said: “well over half of our digital growth was driven by same-day fulfillment options: in-store pick up, drive up, and Shipt. Put another way, these three services drove more than a quarter of our total company comps growth of 4.8%.”
Not to be left out of the online delivery wars, back in 2017 at a cost of $550 million Target purchased Shipt which provides same day delivery service. Recently Target announced that customers can get same day delivery for $9.99 per order via. Shipt.
It is clear that Target is making significant gains in eCommerce at a time when Amazon’s eCommerce growth is slowing. In Q1 of 2019 Amazon had year over year eCommerce growth of 10% while Target and Walmart had growth of 42% and 37% respectively.