Brian Cornell is challenging Target’s status quo.

This story first appeared in the October 23, 2014 issue of WWD. Subscribe Today.

Target’s first chairman and chief executive officer from outside the company’s ranks — Cornell was ceo of Pepsico America and prior to that ceo of Sam’s Club — is shaking things up and focusing on the key categories of fashion, home, baby and kids and wellness, while refining its strategy on food.

He’s also investing in online and digital capabilities, an area where retail experts saw Target as lagging behind competitor Wal-Mart Stores Inc., which operates a lab in Silicon Valley and has acquired more than a dozen small tech companies in the last two years.

Cornell recognizes the fact that Target has lost some of its merchandising mojo — the creativity, style and edge that earned it the nickname Tahr-jay in the early Nineties. He said Target’s image has shifted more toward the low-price proposition of its longtime brand promise, “Expect More. Pay Less,” than the part of the message that addresses innovation and creativity.

“How do we inform the brand and get the balance back to ‘Expect More, Pay Less,’” he said in an exclusive interview.

Asked whether Target is doing anything differently in terms of its designer partnerships, which have become the hallmark of retailers from H&M to Macy’s, Cornell said, “Our whole focus is on design and style. We love to hear new ideas. We’re very pleased that what we’ve done [in terms of collaborations] still works. We have a collaboration with Joseph Altuzarra and we have apparel based on the movie ‘Annie.’ The Toms partnerships are blowing up on social media. Toms is our largest partnership [on social media] to date. It’s so well positioned for Target, which is a company that’s been giving back throughout its history.” Toms donates a pair of shoes to a child in need for every pair purchased.

Cornell is redefining the profile of the Target “guest.” “We still have a ‘cool factor’ shopper, but we’re recognizing that more and more there is a growing Hispanic audience,” he said. “We recognize that the guest has changed. They’re very connected and love to shop, but the demographics have changed. Localization and personalization are important.”

CityTarget, an urban format with 80,000 to 100,000 square feet of space, has opened in locations such as downtown Chicago. The first TargetExpress opened in July near the University of Minnesota campus in Minneapolis. At 20,000 square feet, the store offers 15 percent of the products in a SuperTarget store. While the ceo did not reveal plans to open more TargetExpresses, he hinted that it’s a possibility because “people are moving back to cities. We need to understand how to meet the needs of urban shoppers. We also recognize that we have families. We’re rolling out CityTarget and looking at rolling out Express, which is in the very early days and has been successful.”

P-Fresh, Target’s multiyear initiative begun in 2008, expanded the grocery departments in most stores, resulting in an increase of 50 percent to 200 percent more space for food. But it’s unclear how successful P-Fresh has been in driving repeat business. Target entered the food arena under then-chairman and ceo Gregg Steinhafel who saw the new category as a major game changer for the retailer and a chance for it to close the revenue gap with the behemoth of Wal-Mart. Cornell is revamping that strategy.

“As we think about the role of food, we need to step back,” he admitted. “We’ve made it really clear we’re going to double down on style and design and invest in apparel and home. Baby and kids are critically important and wellness is a big growth area.”

Target’s Merona and Mossimo brands are billion-dollar businesses, but it’s been several years since the retailer introduced a new apparel label. “We have a very extensive product design and development team of over 600 people,” Cornell said. “How do we unleash them with the right guest in mind? We have some great internal designers.” Will Target develop another women’s apparel label along the lines of Isaac Mizrahi for Target, which was discontinued after the designer joined the Liz Claiborne brand in 2008?

Cornell said that is something the retailer is looking at. “What is the next new proprietary brand to keep our collections fresh and serve other guests?” he said. “Home and apparel are where we can [leverage] that.”

Cornell has some serious challenges to overcome. Target’s financial results have been uneven since last year’s fourth quarter, when the retailer posted a loss due to the massive data breach at holiday that potentially impacted millions of shoppers. Second-quarter net earnings dropped nearly 62 percent to $234 million or 37 cents a share on sales of $17.4 billion from $17.1 billion, a 1.7 percent increase over 2013’s second quarter.

Target cut its guidance for adjusted third-quarter earnings per share to between 40 cents and 50 cents a share. Analysts are expecting earnings of 65 cents a share. For fiscal 2014, Target cut guidance to between $3.10 and $3.30 a share from a previous forecast of $3.60 to $3.90 a share.

A key problem is Canada, where the business continues to falter. Canadian segment sales rose 63.1 percent to $449 million from $275 million in the 2013 second quarter, partly due to new store openings, but comps declined 11.4 percent in the second quarter. Target has changed its management in Canada in an attempt to get the business on track.

All of these problems led to pressure on Cornell’s predecessor, Gregg Steinhafel to step down in May. Cornell joined as ceo in August.

Now, he’s facing his first holiday season at the helm of the discounter — one that’s expected to be more competitive than ever across all segments of retail.

Target and Wal-Mart themselves are deploying new technology, investing in low prices and trying to one-up each other with exclusives.

Cornell on Wednesday unveiled a multipronged holiday initiative with new enhanced digital tools such as a holiday wish-list app and said the retailer will offer for the first time free holiday shipping on most purchases made on target.com. However, some analysts warned that free shipping could negatively impact gross margins. “We estimate that this free shipping offer could translate to 230 basis points of gross margin impact and 4 cents to 6 cents in earnings per share, although the company noted this offer is already included in guidance and therefore likely funded with expense reductions in other areas,” said Matt Nemer, a retail analyst at Wells Fargo.

Target is upping the offering of items for sale online to 65,000 from 60,000. The retailer has a price-match guarantee and will be loading Cartwheel, its digital savings app, with daily deals. IPod and Android apps have been relaunched for the holidays with new enhancements such as interactive store maps and streamlined checkout with Apple pay on the iPhone app.

Wal-Mart last week lowered its full-year forecast, citing a tough economy, and putting a cloud over holiday sales. But the retailer isn’t surrendering Christmas. With its financially pinched shoppers in mind, Wal-Mart is offering a holiday layaway plan with no opening fee. A portion of its Web site is devoted to a clearance: “Huge savings on the hottest items” and a “savings center” feature that suggests other low-priced items that might interest a consumer.

Wal-Mart polled hundreds of children to find their favorite toys and will cover them on SavingsCatcher, its digital price-comparison tool. The Bentonville-based mass merchant plans to deliver its holiday message through its new “holiday hub,” a production studio that will produce thousands of ads and other forms of content for everything from broadcast television to Vine under the direction of a former Saatchi & Saatchi executive.

Target recently launched two new apps and promises more in 2015. A new Target Healthful app manages prescriptions and an updated gift registry has new features and capabilities for life events such as wedding, baby and college.

“As we go forward, it’s really all about mobile,” Cornell told WWD, adding that digital will be the first point of entry for the majority of customers in the not-too-distant future. “It’s such a mobile experience. It’s where they purchase, it’s in their hand. I’ve seen shoppers steering their cart with one hand and using their other hand to hold a phone. There’s an art to it. They’re using Cartwheel to find savings. It’s a GPS, a navigator for the store.

“Shoppers recognize they have more options now,” he added. “Amazon has changed everybody’s expectations. Our staff has got to supply solutions. We can direct you to a new app or a digital solution. Our physical stores are quickly becoming solution centers for the guest. We’re shipping from stores now. You can come in, shop, and decide you want to pick up next week or have something delivered. We’re beginning to think of stores as distribution facilities. There’s much more flexible fulfillment.”

With a new social command center at headquarters, Target is becoming more proactive in terms of social media “to stay in touch with what’s happening and what’s streaming,” Cornell said. “We built a center where we can see data from all of our platforms [Facebook, Twitter and Instagram]. Retailers are content generators. We amplify guest content and make it very visible. Guests love it when we use their content. The guests get more posts than our posts. It has an authenticity and attraction. We do it across platforms and monitor their comments closely. When a friend says, ‘You have to go to Target,’ it has [far more influence than anything we could say.]”

There are further signs that Target is pushing hard to recapture its buzz. The company said it will partner for Christmas with Story, a Manhattan store known for its themed installations and the editorial lens it brings to retailing. Story visited Target headquarters to select holiday products from the retailer’s design partnerships to its everyday collections. The Target collaboration will open at the store on West 19th St. on Nov. 5. Kathee Tesija, chief merchandising and supply chain officer at Target, said that Story will be “a testing ground for us to continue to understand how merchandising and product curation influences our guests.”

Across the board, there is change in the air at Target — beginning in the chairman’s office. Cornell is far more open and forthcoming that his predecessors, which was evident from Day One when he held a town hall-style meeting for thousands of employees. It’s all part of Target’s recognition that its methods of the past are no longer enough.

“Retail is really shifting,” Cornell said. “We used to be so campaign-focused. In July, it was back to school, but the customer [didn’t want to buy back-to-school until August]. I want to engage with the Target guest and make sure I understand and the team understands their expectations of us. My vote shouldn’t be driving our decisions when we have an opportunity to get so much feedback from guests. They vote with their wallets.”

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