The pandemic provided select essential businesses an open field to rake in billions of consumer dollars. Shoppers moved purchases from thousands of shut-down nonessential stores, as well as a huge expenditures in travel, entertainment and other nonessential services to the essentials.
And while Target was one of the beneficiaries of this dramatic windfall, they were hitting the ball out of the park even before Covid became a household term. In fact, their numbers coming out of the third quarter of 2019 showed eight straight quarters of comparable sales increases, growing faster than competitors Kohl’s, Walmart and Macy’s. Its stock had risen by 93 percent, almost double what it was when its current CEO, Brian Cornell was hired in 2014 to turn around the ailing brand.
So, while Target did, and is still to some extent reaping a top and bottom line benefit due to Covid, Cornell and his team’s turnaround strategy, laid out soon after his arrival, and powerfully implemented beginning in 2017, was rolling Target into 2020 on steroids. Ironically, tthe pandemic was just another shot of the growth drug.
Not only is Target powering through Covid, the visionary and strategic framework created five years ago, and now being perfectly executed, will result in competitive superiority well into the future. I also believe it is an example that can inform all multi-branded and multi-category big-box retailers, including department stores, how to transform their models for success in the 21st Century.
And this is why The Robin Report, in collaboration with SAP, has selected Target as a 2020 Retail Radical, along with Levi, Nike, VF Corp., and Ulta. More on the other Radicals will be featured in subsequent weeks.
A Radical Example on Jet Propulsion
Talk about radical! A few months after Cornell became CEO, he shuttered 133 stores in Canada opened by his predecessor just two years before he took the helm. It was estimated that the stores racked up $2 billion in net losses. Furthermore, he inherited a massive data breach that occurred before the Holiday shopping season 2013, which was a huge distraction upon his arrival. Another prescient early move was Target’s sale of its 1660 pharmacies and 80 clinics to CVS for $1.9 billion, which would hence operate as CVS-branded shops within Target’s stores. That tells you something about incoming Cornell’s laser focus on the Target brand and was a preview of things to come. Besides, what a brilliant synergy initiative. CVS is a powerful and reputable destination brand in its own right. So, both CVS and Target customers will spend crossover dollars.
The more important underlying story has to be Cornell ‘s and his team’s turnaround strategy. A fly on the wall would tell you that the new CEO was all about an acute focus on building out the Target brand of the future from well … the physical building out. The store and brand would be the core indelibly linked to the consumer. With retailers’ love affair with tech at the time, Cornell took a more measured approach. There was nothing about implementing tech for tech’s sake; tech was a set of powerful enabling tools to strengthen the brand and the store, and to better satisfy its consumers. Get it? Technology is a tool, an awesome one. But that’s all it is.
Radical or Just Plain “Guts?”
So, Cornell’s strategic plan had an investment price tag of $8 billion, clearly putting money where his “mouth” was. Early in 2017, he announced that seven billion would target store improvements and a billion for operating expenses over three years. This announcement was accompanied by a horrible earnings report for the final quarter of 2016, and a worse than expected outlook for 2017.
Talk about “guts.” I attended an analyst meeting in 2016 and watched an analyst’s screen on Yahoo next to me. When Cornell gave the bad news of needing to invest $8 billion, I could see the Target’s stock price plummet as he was speaking in real time. Cornell advised there would be a hit on margins, but he suggested that rather than gauging ROI performance, Wall Street should measure their performance on ROIC – in other words, focus on their investment performance. The shares did plunge 13 percent at the time to around $58.
Obviously, Cornell’s focus on consumers and stores first, then how technology and ecommerce should be strategized as enabling tools to enhance the shopping journey, was anathema to Wall Street’s and many pundits’ beliefs that ecommerce would own the future. They have reassessed that opinion, given the 93 percent rise in the stock since Cornell took the helm.
As we can now see in plain view, even in the throes of the continuing pandemic, it’s obvious what Target was strategically planning to do.
Their “store first” strategy placed the consumer first. It’s obvious they determined how the consumer wanted to engage and be engaged, which would include the entire shopping journey, both online and off. And of note, at the time, Fortune magazine quoted Sucharita Kodali of Forrester Research that Target has an advantage over most retailers in quickly identifying new opportunities because they are “data driven, rather than imposing its vision from the top-down as JC Penney did (referring to CEO Ron Johnson’s tenure).” Another benefit of a data-driven culture is the ability to drive personalization (and localization) in both products and service. Data also enabled Target to create a small neighborhood store strategy, by precisely identifying customer preferences in those communities. In the same Fortune article, it was reported that these small stores (roughly 100) are generating about $900 per square-foot, which is astounding.
As evidenced by their transformational turnaround, the $7 billion was wisely invested in seamlessly integrating their digital and physical ecosystems. It provided the consumer with the ability to shop, purchase and take possession of goods any way they desire: buy online, pick-up in store or curbside or have it delivered, or buy in store and have it delivered. The investment funds also led to their acquisition of same-day delivery service, Shipt, which includes the personnel to do the actual shopping for the consumer.
Another of Cornell’s objectives was to return Target to some of its winning roots. Through consumer analytics and great merchandising skills, they created about 12 private brands and added Target exclusive brands, all aimed at young families and aligned with the original “Tarjay” image. The stores were spiffed and brightened up, and clothes displayed on mannequins. In general, the resulting experience is fun, energetic, refreshing and a place consumers enjoy going to.
Radical Strategies Yield Radical Results
Target announced their second quarter earnings on August 19, 2020. The company’s second quarter comparable sales growth of 24.3 percent was the strongest it has ever reported, a reflection of the continuation of heightened sales and significant investments in response to the Covid-19 pandemic. “Our stores were the key to this unprecedented growth, with in-store comp sales growing 10.9 percent and stores enabling more than three-quarters of Target’s digital sales, which rose nearly 200 percent,” said Brian Cornell. Stores fulfilled more than 90 percent of Target’s second quarter sales and same-day services (in-store and curbside order pick-up and Shipt) grew 273 percent and accounted for approximately six percentage points of total comparable sales growth. The company reported GAAP earnings per share (EPS) from continuing operations of $3.35 in the second quarter, an increase of 84.4 percent from $1.82 in 2019. Second-quarter Adjusted EPS of $3.38 grew from 85.7 percent compared with $1.82 in 2019.
In the first half of 2020, Target added 10 million new digital guests. It saw the fastest growth in drive-up, which grew more than 700 percent. Year-over-year Target sales fulfilled by Shipt grew more than 350 percent and in-store pickup sales increased more than 60 percent in Q2. Order pick-up has already been in Target stores for five years and continues to grow in popularity. The seamless experience between digital and in-store shopping provided guests with the relief and ease of shopping while navigating the challenges of the pandemic.
Guests shopped both discretionary and frequency categories as they consolidated trips in store and online at Target. The company witnessed unusually strong market-share gains across all five of its core merchandise categories and saw $5 billion in market share gains in the first half of 2020, surpassing all of 2019.
In an effort focused on “striving to be America’s safest place to shop,” Target’s teams moved quickly to rethink the shopping experience as guests continued to prioritize safety. Some of these efforts included featuring back-to-school assortment for an extended period, allowing parents to delay shopping until they have more certainty on their school district’s plans, closing stores on Thanksgiving, and spreading best-price holiday deals over a longer timeframe to ensure guests are not missing out on great savings. Keeping not only guests,’ but also employees’ needs in mind, the company announced a raise in minimum wage to $15 per hour in July, (which is 20 percent above the U.S industry average) as well as committing more than $1 billion to paid leave, bonuses, back-up care, tutoring resources, caregiver assistance, and wellness benefits.
Yes, Brian Cornell put his money where his original strategic vision was from the very beginning. He and his teams are lauded for their radical transformational turnaround of Target, a Robin Report 2020 Retail Radical.