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Target is rewriting the rules of big-box beauty retailing. Shoppers aren’t customers, they’re guests. Instead of shelf talkers, well-dressed young women wearing aprons, called concierges and armed with an iPad and a mirror, patrol the cosmetics department in some stores, ready to give advice on everything from the newfangled cutting-edge antiage hair-care brands to high-tech skin care.
“Innovation” and “newness” are the buzzwords redefining the old standard of value pricing. High-low collaborations with decidedly tony outfits like Cos Bar and Neiman Marcus have taken the industry by surprise.
Nearly 40 percent of Target’s stores have customized their assortments to appeal to the local population. Overhead signs in Spanish have been installed in 300 stores and the bold graphics and lighted shelves are as slick as the retailer’s eye-catching TV campaigns that exhort viewers to expect more and pay less.
Far from the traditional everyday-low-price big box, Target is pounding as hard as it can to break down class-bound barriers and dispel outdated perceptions. “Elevate” is an operational verb frequently used by José Barra, senior vice president, merchandising, of health and beauty at Target. “We have pushed,” Barra says. “We are a company that’s going to take risks and we’re going to push the boundaries to the extent that we can. That’s one of the things that we’ve done in beauty. We’ve tried to elevate the shopping experience, do some things that are different and new and unique.”
“Target is discovery,” says Ido Leffler, cofounder of Yes To Inc. “They truly know their guests and love to delight them,” adds Leffler, whose fruit and vegetable–based range of body-and skin-care products has been part of the focus of Target’s push into natural products. Not surprisingly, Target has become Leffler’s largest account. “They’ve become a destination for beauty,” Leffler says.
“They are a very opportunistic player because they managed to hold on to their big-box roots, but they’ve done a very nice job of projecting themselves as an up-market alternative,” says retail guru Paco Underhill. “They work very, very hard on that.”
Underhill credits Target’s success, in part, to its decision to move its headquarters to downtown Minneapolis back in 1998. “It is the only one of the big boxes that functions out of a city,” he says. “It has a much better connection to the street.”
Underhill’s theory is that Sears “lost it” when the chain moved out of downtown Chicago and the same for J.C. Penney, when it traded New York’s Sixth Avenue for “a corporate campus in exurban Dallas. I credit Target for moving into that urban setting, which makes sure that everyone who works in corporate central sees something other than their own culture on their way to work and at lunch time,” he says.
Since that move, Target has grown into a 1,778-store powerhouse: 1,523 are general merchandise stores, 250 are Super Targets and five are pioneering City Targets. Nineteen new stores are slated to open this year. While neither store executives nor anyone else would quote figures, industry sources roughly estimate that Target generated more than $2 billion in beauty sales during 2012, about 13 percent of a $17 billion market, not counting proprietary or owned brands. The figure also doesn’t include body wash or lotion. That puts Target in second place in mass, behind Wal-Mart, which did well over $5 billion in the same period with approximately 4,625 stores in the U.S. Except in facial skin care, which sources say has a growth rate slightly behind the market, Target outperforms the market by at least one percentage point in every beauty merchandise category. Its largest and most powerful segment, color cosmetics, generated more than $800 million last year, according to industry estimates. That figure represents a 9 percent gain over the prior year, a growth rate almost double the 5 percent increase in the general makeup market. Hair care is nearly as powerful at $750 million. The store’s share-beating trend reportedly continued into January.
Barra declined to comment on any figures, except to say, in general: “We have been consistently gaining market share for a number of years.”
On a recent snowy day, the executive is striding through the gleaming, 160,000-square- foot Target on West Peterson Avenue on Chicago’s far–north side. Although the first big, worrisome snowstorm of the winter is gathering outside, Barra is too busy to notice. He’s discussing the transformation of Target’s beauty business, asserting that the lines between mass and prestige are blurring.
“Right now, guests expect Target to have many of the brands that traditionally are not available to a mass retailer,” he says. “One of the things that we’ve been working hard to do is to evolve the shopping experience. If you think about Target five, six years ago, it was a more functional experience,” he continues. “You came, we made it easy for you to find a product that you needed and off you went. But it wasn’t as inspirational.
That’s what led us to do Destination Beauty.” Destination Beauty, which kicked off in 2008, features cross-over makeup brands such as NP Set from Napoleon Perdis and Pixi. “We tried to create a more inviting, more inspirational experience, [with its] graphics and lighted shelves,” says Barra.
Recent points of emphasis have been nail enamel, with the addition of Essie, and natural-based beauty, including the Yes To franchise, Pacifica and the Güd line from Burt’s Bees.
Come April, Target is getting ready to “reinvent” the skin- care and hair-care categories, one of a series of evolutionary tweaks that will be a prelude to a “more expansive evolution” planned for next year.
On this day, though, Barra has his mind on next month’s move. Although Barra says there was little innovation in hair care in the past, he points out the category is booming this year, particularly with the launches of antiage products from Procter & Gamble’s Pantene and L’Oréal Paris.
Skin care represents another significant opportunity. While Target has an important business with Procter & Gamble’s Olay, Barra notes that the retailer is now looking to dimensionalize the brand selection. “We feel that that’s one of the categories where some smaller brands, premium brands, will complement our assortment,” he says, citing as an example a test currently being conducted with L’Oréal’s La Roche-Posay high-tech skin-care brand. “There are still some pockets where we’re not serving the guests as well as we want,” says Barra, adding that antiage products have formed a fast-growing category as have complexion-enhancing products. “A lot of the new developments are aimed at an older demographic,” Barra adds.
La Roche-Posay’s price points range from $12.99 to $53.99. Asked how the test is going, Mike Larrain, president of the active cosmetics division of L’Oréal USA, says, “We’re very excited about the ongoing test that La Roche-Posay is currently conducting with Target. The goal is to create a new category of dermatological skin care that is accessible to consumers and driven through advice at the point of sale. We’re looking forward to a successful outcome and a new platform.”
In addition to tweaking the brand assortment in skin and hair care, Barra is also focused on the merchandising aspects. “We need to elevate that shopping experience,” says Barra. Some of the changes include new signage and display fixtures. For example, display cases mounted at eye level, called “glorifiers,” will be used to showcase and promote products, in addition to the usual end caps. “Because of the incredible amount of innovation that comes into that part of our store,” Barra says, “we feel that we need to be able to display the newness in a way that is easier for [the customer] to know and understand.
“Skin care is one of those categories where shoppers need a little more help,” he continues. “It’s very hard for them to discern at the shelf what would be the best treatment, and that’s where our beauty adviser will play a big role.”
Part of the Beauty Concierge program that was launched last July and is currently being tested in 32 Chicago stores, the beauty advisers are “brand agnostic” and offer advice on key products across all the categories. (Target previously had assigned advisers to sell the Boots brand in about 300 stores.) “She has been trained to service all the brands,” Barra says, but notes the emphasis will be on newness. “That’s where we feel our guests need the most help.
Asked if this is part of a strategy to trade up the brand assortment, Barra replies that the objective is to create “an elevated experience and an elevated offering that complements what we have with our national brands. This is not about replacing what we already have, this is about complementing what we have because that’s what [the guest] wants and these are our strike points.”
It is working well, so far. Barra says that when he looks into a basket of the product categories that the adviser is dealing with, “we’re seeing significant results.” Ultimately, the plan is to broaden the Concierge program to about 30 percent of the chain, or 400 to 500 stores.
Because of the changing shopping patterns of its guests, Barra is bullish on the program. “Clearly you are trying to cut the number of trips that you are making,” he says of the consumer, who historically has been consolidating her number of shopping forays. “So when you were coming to Target before, maybe you needed one thing. You grab it and you go. Now, you come and you explore. You want to try out new things.
“But in beauty,” he continues “you want someone to help you make those decisions. As we’re doing that, we are capturing that trip. Before, you would check it out and say, ‘I’m not totally confident. I’m going to go to a place where there is someone who can help me decide or I’m coming back with my friends.’ Now we’re making that resource available.”
Karen Fondu, president of L’Oréal Paris USA, says, “Target has been a leader in bringing innovation to the in-store beauty environment in the mass market. From the successful launch of the Destination Beauty store concept to the recent pilot of the Beauty Concierge program in the Chicago market, Target continues to reinvent the beauty experience for their guests.”
Fondu is not alone. Jeff B. Smith, president of Johnson & Johnson U.S. Skincare, says Target excels at “making the shopping experience enjoyable and providing solutions that lead to basket-building transactions. Target does a better job at ‘solution selling’ than many of their competitors, who tend to operate against ‘item at a price.’” Smith adds that Target is particularly adept at catering to moms, as well as providing a more heightened experience in general.
“Perhaps no other retailer is as good as Target in creating a masstige shopping environment that offers great prices within a more upscale, fashion-forward setting,” he says. “Exclusive offerings in their fashion, beauty and home categories help to drive engagement and excitement by providing guests with special experiences—whether it’s a limited clothing line from a famous designer or exclusive offerings from eco-friendly household brands. Historically, Target advertising has been a clear point of difference. Over recent years they’ve evolved their core branding and I expect that we’ll continue to see variations in the future that keep the branding contemporary and fresh.”
Maintaining that freshness will be key to keeping shoppers coming back. Barra describes Target’s average customer as a mom in her mid-40s. “When we see our core guest, we know that she is more educated, she is digitally attuned so she multichannels or she leverages her iPhone to shop,” he says. “She is time-pressured, but she’s a savvy shopper and she cross-shops. She is going to specialty stores, she’s buying at premium stores and when you see her dress, you would have her maybe wearing a Louis Vuitton handbag with a Mossimo Target shirt.
“She already knows what she wants and understands some of the brands,” he continues. “We offer her a concierge to help her discern what she wants to pick, less than to educate her on her needs.”
As in other aspects of merchandising, what’s new is what’s sexy. “We typically get two or three times our fair share in all the innovation because we have trained our guests to seek that newness,” says Barra. “We are trying to set up a platform so our mentor partners benefit disproportionately from innovation. That’s why we invest in the disruptive graphics and the beauty adviser. She overemphasizes on the newness. It’s all about ‘expect more, pay less’; everything we do is with that objective.”
The effort is paying off. “Target has done an amazing job in the last five years or so to become a true destination for beauty,” says Victoria Gustafson, principal of strategic insights at SymphonyIRI Group. “They did a great job having a department-store feel, especially for the cosmetics categories.” Without divulging figures, she says that Target has “cracked the formula” in cosmetics. “It seems like they have something for absolutely everybody. They have proprietary products, branded products available in mass and higher-end products that are really truly not available anywhere else.”
Gustafson also points out the high frequency of new items popping up on Target’s shelves. “They are receptive to innovation,” she says. “If I look at the average churn [of new items] moving through Target versus the rest of the immediate universe, they are definitely ahead. They are absorbing new items much more, they are keeping consumers coming back, but all of it is on the basis of offering something for everybody in that space and making them feel very welcome.”
Speculating on future steps, Gustafson echoes other sources in saying, “Skin care is something that they have an opportunity to work on. They’re behind the industry on growth [by] a couple of points. They’ve done really well in cosmetics, better than the category in hair, so skin care is the next logical step.”
Gustafson maintains that the mass skin-care market has lacked innovation since the antiage boom of 2000. “Target’s thing is to promote innovation, where it is available,” Gustafson notes, “and skin care has been lagging in innovation for years.”
Gustafson adds that Target has achieved an envious feat in luring shoppers into making purchases without being offered a deal. “If I just look at promotion across these categories in Target and look at the industry average, Target is able to actually reduce the levels of promotion in cosmetics and still grow sales,” she says. “They cracked the shopper code.”
The retailer did it by weaving together a rich tapestry of brands with differing price points and per- sonalities. As Barra moves past the gondolas in the Peterson Avenue store, he breaks down the archi- tecture. There’s owned brands, like value-oriented Up & Up; exclusive brands such as Sonia Kashuk cosmetics, which is a partnership; semi-exclusive brands that are confined to Target among mass- market retailers; exclusive products from national brands, like Target Red lipstick from L’Oréal Paris, and the national brands that are distributed everywhere, like L’Oréal, Maybelline, Cover Girl and Olay.
All the strategizing to elevate the shopping experience is done not only for the sake of their guests, but also for the vendors and, more importantly, potential vendors. The conversation inevitably turns to Target’s quest to lure more premium brands. “To be fair to the beauty industry, many of them have the idea of Target 10 years ago, when it was a very functional shopping experience,” says Barra. “We continue to elevate it, and we would like to think that it’s more inspiring. We’re adding the element of service. We are getting good traction from the smaller premium brands, prestige brands.”
In addition, Barra has a ready answer for those who say, “Per- haps I don’t want to be at a Target all the time in all stores.” “Great, that’s why we have our limited partnership,” Barra says. That segmentation strategy applies to La Roche-Posay, which is restricted to the doors “where it makes sense,” he says.
“People think that Target has a shotgun, but the reality is we’re laser-focused,” says Barra. “Where it makes sense, we’re going to collaborate and play with you and where it doesn’t, we obviously don’t want to have the brand.”
Barra, who says he wants to recruit more exclusive brands, says that, in general, “The industry is very receptive to Target. They’ve seen what we’ve done and how we have soft hands and also how we’re elevating our experience. We have great momentum. But again, it’s just continuing to evolve and making sure that their thinking evolves as well, their perception of Target.”
Some recent brand wins for Target include Pacifica, the chain’s first natural color-cosmetics brand, and Mixed Chicks, which is aimed at the African-American population.
Mixed Chicks is one of the brands—along with Miss Jessie’s, another mass-market exclusive, and Iman Cosmetics— that serves a black population. Like other retailers, Target is intent on luring more shoppers from the African-American and Hispanic communities, as evidenced by the Spanish signs in 17 percent of the stores.
Traditionally, big-box retailers have encountered supply- chain foul-ups when trying to offer differentiated assortments in individual stores to cater to a local clientele. But Target is tackling the problem head-on. Barra says of the more than 1,700 stores, the offerings in nearly 700 of them differ from the master planogram, and there’s more to come. “Probably this year we’re going to do more than last year and in five years we’re going to do a lot more than what we’re doing to- day,” he says. “It’s the trend. The bar is getting higher and now you expect me to give you what you want, not what I want to sell to you. I need to get better at anticipating your needs and also offering what you want for you.”
Standing in the Chicago store, Barra points out that apparel (what consumers want) is located at one end of the store and perishables (what they need) is at the other. In the center is beauty, literally a bridge between wants and needs. “Qualitatively, beauty is a category that’s stylish, like some of the parts of our stores, but it’s also frequency, like the other part of the store,” says Barra. “It plays a very important role, bridging the guest from the trendy part of the store to the commodity part of the store. It’s a great crossover category.”
Taking Aim: How Target stays On Top
The New Deal: Innovative programs like in-store beauty concierges break the mold of traditional big-box retailing.
Added Dimensions: By adding smaller, more premium brands, Target is looking to boost its skin care business, much as it did with makeup.
Innovation is Everything: When it comes to products, newness drives sales at Target. Period.
Consumer Rights: Target is finely attuned to what consumers want, always trying to stay a step ahead of their product needs.
In Sharp Focus: A finely honed segmentation strategy allows Target to tailor specific programs to specific doors, be it with high-end skin care or Spanish-language signage.