There will be no midlife crisis for Target.
This story first appeared in the June 25, 2012 issue of WWD. Subscribe Today.
The retailer, which turned 50 in May, has no use for proverbial sports cars or casual flings. It’s focused on the future and standing on solid financial ground — but not standing still.
The Minneapolis-based mass retailer has made a habit of catching shoppers off guard, lest they become too complacent. Just when the limited-time designer collaborations of Go International were hitting their stride, Target Corp. introduced a new platform for collaborations, The Shops at Target.
“We thrive on change,” said Kathryn A. Tesija, executive vice president of merchandising. “The most important thing is to make sure we’re very focused on our guests. It’s hard to be in retail if you don’t love change. We’re always looking for the next best thing.”
Target’s 2011 revenue was $69 billion, and the company is on plan to reach its goal of $100 billion or more in sales and at least $8 in earnings per share by 2017. The retailer achieved a 5.3 percent comparable-store sales increase for the first quarter, the largest since the third quarter of 2005. Those figures were cited by Gregg Steinhafel, chief executive officer, at Target’s annual meeting on June 13.
“Our profitable performance fuels job growth and economic activity in thousands of local communities,” Steinhafel said at the meeting. “It drives sustained shareholder value and makes innovation and continuous improvement possible through our worldwide operations, and it enables us to give more than $3 million a week to support and strengthen our communities through our unwavering 5 percent giving commitment.”
Steinhafel was referring to Target’s policy, since 1946, of donating 5 percent of its income to communities.
“We see endless opportunities in today’s fast-changing retail world,” Steinhafel told WWD. “Today’s Target team has the insight, ingenuity and passion to drive our next 50 years of guest connection and growth. New initiatives like our CityTarget store format for urban locations, our expansion into Canada and our focus on multichannel are just some of the ways in which we’re positioning Target for future growth. If we continue to listen closely and respond to the changing needs of our guests, and if we remain as innovative, adaptable and disciplined as I believe we will, then Target will really shine in the months and years ahead.”
Ranging in size from 80,000 square feet to 100,000 square feet, CityTarget stores are a growth vehicle for a country with little suburban or exurban land left to build on. Full-size stores are between 128,000 square feet and 135,000 square feet. Small-format stores will open in Chicago and Seattle in July, followed by San Francisco in October. Three CityTarget units are slated to open in Los Angeles, in July, October and 2013, when one will also open in Portland, Ore. Target is exploring 10 more major markets, including Minneapolis, Boston, New York, Philadelphia, the Washington-Baltimore corridor and Miami.
Target isn’t the only mass retailer opening smaller stores. Wal-Mart unveiled the first two Wal-Mart Express test stores in Northwest Arkansas last June. The Express stores average 15,000 square feet and offer groceries and general merchandise, fresh produce, dairy and meat, dry goods, consumables, health and beauty aids and over-the-counter drugs.
“We know that our urban guests are driving to nearby Target stores to shop, and CityTarget brings the store to them,” said John Griffith, executive vice president of property development at Target. “Target flexes [its] store designs into unique spaces and is building stores that fit into the aesthetics of individual communities. Each CityTarget location is unique, and our store design team has created fun, surprising elements to appeal to our hip and chic urban guest.”
“We’ll tailor our assortments,” Tesija added. “We’ll have food in all locations in varying amounts. We’ll have a full range of apparel and accessories and will be bringing our design partnerships to CityTarget. Our urban guest is very trend-forward and loves high quality. Apparel, home and beauty will do very well.”
Target has been cautious in expanding beyond U.S. borders. The retailer last year agreed to purchase from Zellers the leasehold interests in up to 220 sites in Canada.
“Our focus at the moment is converting 125 to 135 Zellers sites next March and April in Ontario,” a spokeswoman said. “We are looking at other locations beyond Zellers. In the next two years, we could have 200 stores in Canada.”
Target is building three distribution centers across Canada and working closely with the Canadian vendor community to develop the foundation for the business, she added.
“Expanding beyond our northern border represents tremendous growth opportunity,” Steinhafel said. “We expect Target Canada to deliver $6 billion or more in sales and $0.80 or more in earnings per share by 2017.”
Wal-Mart, which has been far more aggressive overseas, has stores in 27 countries, but its complex international business has not been without risks; the retailer is at the center of a scandal involving alleged bribery in Mexico and is extending its inquiry to other parts of the world.
On the cyber front, Target has been criticized for the less-than-seamless development of its multichannel strategy. The retailer’s Web site crashed during the launch of Missoni for Target last September, unable to handle the demand. Tesija has said this won’t happen again.
“We were disappointed with some issues we had last fall,” she added. “We quickly got our site back up and running. It was stable all fall.”
The Internet, social media and mobile are “redefining our business and every important part of who we are today and who we’ll be in the future,” Tesija said. Calling Target’s consumers “very digitally savvy,” she noted they are watching TV, working and shopping on smartphones. “We have to create differentiated experiences in stores, online or in social media.”
To critics who say that Target isn’t as advanced digitally as Wal-Mart, with its Silicon Valley-based @Wal-MartLabs research and development unit, Tesija responded, “We have scannable coupons, our iPhone app won awards three years in a row and we rolled out Shopkick this month.” The app gives shoppers rewards for walking into a Target or visiting a certain area of the store.
“In terms of technology and where we’re innovating, there’s our digital home catalog,” Tesija continued. Moving a bar on the page changes the style of the room. Scrolling one way shows a modern room, while scrolling the other way yields a traditional room. “It’s important to be cutting-edge but not for the sake of being cutting-edge. We’re tailoring experiences that offer solutions for [customers’] daily lives.”
Target’s brand promise, “Expect More. Pay Less,” introduced in 1994, has outlasted many corporate tag lines.
“It strikes the right balance for our guests, in all economic conditions,” Steinhafel said. “Our store experience, broad selection of food and household essentials, and our low prices, supported by 5 percent REDcard Rewards and our price-match guarantee, drive traffic in any economy.”
He added that Target’s emphasis on fashion, design and newness attracts customers.
“The economy is recovering slowly and unevenly, and we expect that to continue,” the executive said. “As always, we’re focused on serving our guests better, saving them time and money, and delivering a superior shopping experience. This disciplined focus on our guests helped us implement and develop winning strategies during the recession — including our expansive full-store remodel program and the REDcard Rewards — and will help us continue to anticipate our guests’ needs.”
Target emphasizes “Expect More” during sound economic times, and highlights “Pay Less” when times are tough, as in 2008 when its TV campaign, “A new day, new ways to save,” addressed shoppers’ budget concerns.
“In the last several years, our guests have shifted their mind-set a bit and what you’ve seen is their reaction to that,” said Tesija. “We still believe in both sides of the brand promise. We’re aspirational, but not disconnected from our guests’ lives. Even through the recession, we introduced, on the ‘Expect More’ side, Liberty of London for Target, [a limited-time collection] with 400 items. We were able to go into items with lower price points, such as stationery.”
Still, Target lost the latest round in the price wars. According to Deutsche Bank’s pricing study, “Wal-Mart maintained its price leadership position with the spread widening sequentially. Notably, we attribute the increase to a higher basket price at Target. Wal-Mart regained the price advantage from Target in June following the latter holding the leadership position for the past two like-for-like studies. Specifically, prices at Wal-Mart were lower by 19 cents, on average.”
Tesija said, though, that it’s not only about pricing. “Even though the price points may be higher, guests see these products as a huge value equation. If you look at the past year, while the economy has still been giving us some fits and starts, and guests are still concerned about budgets, we’ve been able to offer Missoni for Target and Jason Wu for Target. Those have been two of our of best launches yet.”
The Shops concept launched in May with five shops: The Candy Store of San Francisco, Cos Bar cosmetics shop of Aspen, Colo., Boston’s Polka Dog Bakery’s dog accessories, Warren, Conn.-based Privet House’s home accessories and Miami boutique The Webster’s apparel, footwear and accessories. The Shops’ products are in stores for six weeks at a time. The second group of Shops, which bows on Sept. 9, features Boston-based Patch NYC, Kirna Zabête, Odin and The Curiosity Shoppe. In some cases, store owners design apparel or accessories inspired by items that sold in their shops. Tesija said they are “curating product. They have their own style and aesthetic. They’re not designers by trade, but we have experienced in-house staff that works with them.”
The Shops effectively replaces Go International, which was discontinued late last year, but Tesija said the new concept doesn’t preclude Target from working with designers. “One doesn’t replace the other,” she said. “We’ll continue to work with designers, as well as offer new shop concepts this fall.”
A new designer collaboration could be unveiled “in 2013 or before,” she said.
Tesija pointed out that Target hasn’t backed away from long-term partnerships such as Sonia Kashuk, the exclusive makeup brand that offers a $64.99 luxe brush set and a $34.99 luxe train case.
Still, it’s a far cry from the “Tar-zhay” days when in 2006 Target licensed its bull’s-eye logo for a “Target Couture” line of $330 cashmere sweaters and $3,100 one-carat diamond necklaces, which were sold at Intuition in Los Angeles.
“The buzz we got from doing some of those collaborations helped our image,” Tesija said. “It’s important to be aspirational but be geared for our guests. There’s a lot of constituencies. Tar-zhay was appropriate for us at the time. We even did a collaboration with Colette in Paris.”
Tesija was referring to the Proenza Schouler for Target collection that was sold at Colette in 2007.
Michael Graves’ 1999 stainless-steel tea kettle with the red resin bird whistle was the product that launched thousands of design enthusiasts. It allowed Target to assert its design prowess in the home arena, launched the phrase “Design for all” and attracted other designers such as Thomas O’Brien’s Vintage Modern bedding and bath towels, and Cynthia Rowley and Ilene Rosenzweig’s Swell line of home accessories. Target recently ended its 13-year relationship with Graves, and Swell is no longer sold.
The retailer is in the process of renaming its Home brand, Threshold, which Tesija called the biggest rebranding effort in Target’s history. Nate Berkus, who unveiled his signature collection of bedding, bath, lighting, rugs and window treatments in October, is the type of telegenic designer Target seeks these days. An author, TV host and producer, Berkus was a design expert on “The Oprah Winfrey Show.”
Target’s limited-time collections often get more attention than its own exclusive brands. The retailer has always effectively promoted its designer collaborations with TV commercials and print ads, and for Missoni for Target, a 25-foot robo doll dressed in head-to-toe Missoni.
Target will open its first freestanding store for an owned brand, a C9 unit in San Francisco bowing Oct. 14 in its own retail space beneath the second-floor CityTarget. “Certainly, we’ve got many very large owned brands that have their own personality, and that really resonate with guests,” Tesija said when asked if another brand, such as Merona or Mossimo, could get the same treatment. “Instead of renting this space to somebody else, we thought it would be great to put C9 there.”
At the shareholders meeting, Steinhafel touted Target’s “stellar owned-brand portfolio, which now includes 10 owned or exclusive brands that generate $1 billion or more in annual sales each. These brands have become a reason why guests shop at Target, not just something they grab while they shop at Target.”