Target is a dramatically changed company from a year ago.
So said Brian Cornell, the retailer’s chairman and chief executive officer, at Target‘s annual meeting for the financial community on Wednesday at the Lighthouse at Chelsea Piers in Manhattan. At the 2015 meeting, Cornell was talking about discontinuing Target’s Canadian operations, restructuring its headquarters and re-working its core operations.
Cornell on Wednesday crowed about the company’s positive metrics in the recent fourth quarter and full year 2015. He also outlined future initiatives, including new flexible format store openings and new brands launching in the all-important style category.
“We delivered earnings of $4.69 per share for the year, well above [guidance of $4.45 to $4.65],” Cornell said. “Our digital sales topped 30 percent, shattering holiday records and lapping the industry for the year.” While the digital results outperformed the industry, they fell short of Target’s goal of 40 percent growth.
Cathy Smith, executive vice president and chief financial officer, said the retailer plans to grow comps by 3 percent or more in 2017 and beyond. “We’ll deliver an adjusted EPS growth of 10 percent [in 2017],” she said. “We’re positioned to deliver a total return of well over 10 percent annually. After-tax [return on investment capital] last year was 13.9 percent. If we meet our goals over the next several years, we’ll be on track to deliver one of the highest after-tax returns in retail. In 2016, we’re projecting 1.5 to 2.5 percent comp store sales growth.”
Target has engineered new flexible format stores of 10,000 to 50,000 square feet that will open in urban areas, including its first Manhattan unit in TriBeCa; Fulton Street in Brooklyn; Forest Hills, Queens; Washington Square West and Rittenhouse Square, Philadelphia; Lincoln Park, Chicago, and Malibu and Cupertino, Calif., among others.
“Nine out of the 15 stores we opened last year were flexible formats,” said John Mulligan, executive vice president and chief operating officer. “They have made-to-order assortments for their neighborhoods.” For example, a unit unveiled in the Streeterville neighborhood of Chicago has exposed brick walls and wooden beams, and sells craft beer, Chicago sports team products and Todd Snyder apparel. The retailer said test stores with personalized products realized a 1 percent to 2 percent sales increase.
“In addition to urban, we see big opportunities near college campuses, where there’s a lack of overall retail options,” Mulligan said. “Our first foray into campus life was near the University of Minnesota. We opened stores near Berkeley, USC, the University of Maryland. This year, we’ll open at Penn State and near several Boston colleges. There’s a huge opportunity of untapped markets that we can reach with these stores.”
LA 25 is a pilot where Target is taking “50 of the top [ideas] we’ve been testing across the country and putting them all into 25 stores in Los Angeles,” Cornell said. “There will be floor-pad reinventions across the store and staff that provide personalized service will be piloted. We’ll take everything we learned from LA 25 and apply it to our designs for our next store prototype.”
Target’s Signature categories of style, baby, kids and wellness represent one-third of sales and grew almost three times faster than the rest of the assortment. “We’re putting significant resources behind those categories,” Cornell said.
“Today, we introduced two new brands,” Cornell added. “They are going to be billion-dollar brands going forward.”
Pillow fort bowed on Sunday, replacing the existing kids home Circo collection, and is three times bigger. Cat & Jack, a new apparel line for children, will launch in June. “We have the potential to double our kids business in the next three years,” Cornell said.
The retailer on Wednesday revealed a partnership with Marimekko bowing on April 17 online and in stores. The collection will include more than 200 items across product categories based on the bright and cheerful patterns of the Finnish design house, including swimsuits and beach wear for women and girls, outdoor items and furniture.
C2, Target’s proprietary fitness brand, was retooled and relaunched this month. Half of the assortment was eliminated and changes were made to the remaining 65 percent, and athleisure was added.
“When we’re playing at the top of our game there’s no greater manifestation of our brand promise than our style categories,” Cornell said. “We made big investments to elevate the product and improve presentation in all channels. There will continue to be marked improvements in apparel and home in 2016.”
Beauty has also been elevated. The number of premium products — such as Mizon’s skin care with black snail extract — more than doubled in 2015 and sales rose 75 percent over the previous year.
The retailer will spend $2 billion to $2.5 billion a year on technology and supply chain investments to modernize operations and support flexible fulfillment.
“Are we declaring victory? Not even close,” Cornell said. “We have a lot of work left to do.”