Target Herald Square.

NEW YORK Target Corp. chairman and chief executive officer Brian Cornell on Thursday sat beneath an I [Heart] Herald Square sign at the retailer’s new flexible format store that’s opening today [Friday] at 112 West 34th Street here. “Think of the historical significance,” he said of the location. “It’s really much more symbolic about where we’re headed as a company. It represents the future of Target.”

Flexible format stores also bowed this week in Bensonhurst and Fulton Street, Brooklyn; Port Washington, N.Y.; Los Angeles’ Mission Hills and Glassell Park neighborhoods; Orange County; Lakeview Ashland, Oak Park and Skokie, Ill.; Minneapolis, and Philadelphia, where there are plans for three more units in 2018 and 2019. A Target store was unveiled in Honolulu, and Cornell said a rare a full-size unit will open in Vermont in fall 2018 — the first in the state.

In Manhattan, smaller-format stores are on tap for the East Village at 50 East 14th Street and the corner of Avenue A, and the Lower East Side at 145 Clinton Street, both launching in 2018. A Hell’s Kitchen store at 615 Tenth Avenue will open in 2019. “There are lots of different neighborhoods in Manhattan,” Cornell said. “We’re looking at opportunities.”

The ceo, who discussed his vision for Target’s future at a briefing for reporters, said the retailer has made significant progress against its goals and is accelerating its strategy. “We’re reimagining our stores, pursuing a very aggressive digital strategy, moving into new neighborhoods where we never competed before, and transforming our supply chain,” he said. 

He was bullish about Target’s brick-and-mortar prospects, saying Amazon’s recent Whole Foods acquisition “validates the strategy we’ve been talking about for the last couple years. They recognize that physical stores are critically necessary for success.”

The smaller flexible format model is clearly still Target’s growth vehicle, both on college campuses and urban areas. Based on consumer response to existing units, Target is increasing the rollout to 130 by 2019. “Small-format stores do twice the sales of normal stores, and some are higher,” Cornell said, adding, “The stores do $500 to $600 per square foot. This location has incredible traffic with 42,000 people walking by every day.”

“We’ll have a stronger presence in urban centers because that’s where the is consumer is migrating,” he added. “We’re following the consumer. Productivity lifts are consistent across every market.”

Cornell, who previously said Target would remodel 600 stores over the next three years, committed to remodeling 1,000 units by 2020 and elevating key categories such as apparel, beauty and home. “We’re continuing to invest to enhance and strengthen stores with $7 billion in the next couple years,” he said. “Our renovated stores see a 2 percent to 4 percent sales lift.”

The Herald Square store is an example of Target’s latest design thinking with mannequins in the apparel areas and a sleek beauty concept, internally dubbed Beauty Blow Out. It features a brow bar, special lighting, lower fixtures and high-end materials and finishes and is in 70 locations. With Sephora next door in Herald Square, Target knew it had to put on its best face.

The retailer is modernizing its store operating model. In the past, sales associates could be asked to work in apparel one day, electronics the next and beauty after that. “We need experts. We’re investing in expertise with dedicated teams for apparel and other categories,” Cornell said, adding that the decision to raise hourly wages to $11 this year and $15 by 2020 is helping to attract high-quality candidates — and matching what many of Target’s retail rivals have also implemented.

The Minneapolis-based Target is transforming its supply chain, leveraging its 1,800 stores to offer store pickup, drive-up service and same-day delivery. The retailer is also ramping up its ability to ship products from stores, with about 50 percent of all digital orders fulfilled by stores. Over 1,500 stores will fulfill orders over the holiday season.

“The real battleground, where we have to win, is the last mile,” Cornell said, noting that Target recently acquired transportation technology company Grand Junction. Target Restock, which provides next-day delivery of more than 15,000 household items, is available in 11 markets and will roll out nationally next year. “For $4.99, that package will be on the guest’s doorstep the next day,” Cornell said. “We can take orders as late as 7 pm for next-day delivery.”

At Target’s flexible format store in Manhattan’s TriBeCa, same-day delivery has been responsible for increasing basket size by six times the store average. The service will be expanded to the new Herald Square and Brooklyn units.

Cornell projected an annual growth rate of 30 percent for digital, which is “being enabled and driven by stores,” he said. “Our stores are the hub of our digital strategy. We’ll expand our assortment, but we’ll approach it with great curation. You won’t get endless aisles from Target.”

By stressing the Expect More side of its “Expect More. Pay Less” brand promise, consumers didn’t give Target credit for sharp prices. The retailer made adjustments on thousands of core items so they’re “priced right daily” and moved away from the ups and downs of promotions, although there will still be special offers, especially during the holiday season. As a result, Cornell said there’s been more regular-priced business and “market share has been restored in the personal care and household categories.”

In the retailer’s apparel portfolio of national brands and owned labels, the latter have had the upper hand lately. Cornell said Target’s private-label collection has historically had a 90 percent penetration. “We’re bringing new brands and replacing older brands,” he said. “This brings a new energy, new aesthetic and new styles. We have a long history of being very successful with our own brands.”

Apparel and home together are a $26 billion business, and growing. Toys command a market share of in excess of 20 percent, while food and beverage is 20 percent. “Electronics is a very strong business and we’re very strong in essentials and personal care. The overall balance hasn’t changed,” Cornell said.

Encouraged by the performance of home-grown children’s brand Cat & Jack, which hit the $2.1 billion mark in its first year, Target developed 12 brands in-house in 18 months. Women’s collection A New Day is comping in the double digits. “It’s outpacing our expectations,” said Mark Triton, executive vice president and chief merchandising officer, adding that Target is delivering new products every three to four weeks, more like a specialty retailer than a mass merchant.

“Expect us to have great designer collaborations in the pipeline for next year,” Cornell said, although he declined to disclose the designers. “We’ll continue to look at acquisitions, if it makes sense, and partnering with digitally focused brands like Casper, or building our own brands.” Target has taken an equity position in the mattress e-tailer.

“I love seeing guests lined up for a Lilly Pulitzer or Victoria Beckham,” Cornell said, referring to past designer hook-ups. “We have the ability to attract brands that say, ‘I’m looking for a physical presence.’ There will be times when we want to buy and other times when we want to partner.”

Target is counting on the latter, a partnership with Hearth & Hand, a home brand, to be a big business. The Nov. 5 introduction will feature a glass house shop-in-shop for Hearth & Hand at 550 stores. “In our history of great designer partnerships, nothing has created the amount of [early] response and impressions as Hearth & Hand,” Cornell said. “This is going to be a great long-term partnership.”

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