While other retailers have shuttered or continue to struggle to make ends meet, the big-box retailer has opened Ulta Beauty and Apple shops-in-shop in select stores, increased its assortment of both private-label and in-house brands, grew its retail fleet (including smaller-format stores), expanded additional fulfillment options and made considerable top-and-bottom line gains.
Last March, Target said it would invest $4 billion annually to continue to grow its ecosystem. In the most recent quarter, Target logged $1.8 billion in profits with strength across all categories. As a result, shares of Target are up about 61 percent, year-over-year.
“We’ve spent years building and investing in the durable model we have today, which is supported by a differentiated strategy and the best team in retail,” Brian Cornell, chairman and chief executive officer, said in August. “Even after unprecedented growth over the last two years, we see much more opportunity ahead of us.
“Our theme for this quarter was growth on top of growth,” the CEO said during the conference call with analysts that same month. “But you should expect that theme to continue going forward. We’re going to continue to invest in our stores. We’ll continue to invest in new, highly productive stores, invest in our brands, invest in our fulfillment services and invest in our team. And our focus on continuing to drive consistent growth and market share expansion quarter after quarter will be a theme you’ll hear for years to come.”
The success Target has seen over the last year, and its ongoing focus, are the reasons the company is receiving this year’s WWD Honor for Best-Performing Retailer, Large Cap.
Part of Target’s success can be traced back to the fact that it was deemed an essential retailer during the height of coronavirus lockdowns, allowing it to stay open. But even as stay-at-home restrictions began to ease, shoppers continued to frequent the mass-merchant for both food and essentials, as well as fashion, apparel and beauty needs. And consumers weren’t just shopping in-stores either (although Target’s in-store traffic has continued to grow throughout the pandemic), but also online and by way of drive-up shopping as well. Drive-up services surged 80 percent in the last three months. In August, Cornell said that over the last two years, second-quarter sales through drive-up services alone increased by nearly $1.4 billion.
On a macro level, the Minneapolis-based retailer’s winning formula includes its omnichannel model, vast array of stores, coveted mix of products — both essential and discretionary — and its commitment to social causes, as well as investing in its workforce.
“Target is operating on all eight cylinders. And if they had more cylinders they’d be operating on those as well,” said Craig Johnson, founder of Customer Growth Partners. “Yes, there’s a lot of competition in the retail industry and everything else. But they are about as well positioned as anybody.”
For one, the list of ways consumers can actually purchase products from Target is plentiful: in its roughly 1,900 stores around the nation, or by way of e-commerce; buy online, pick up in store; the Target app; drive-up or home delivery. And while other retailers are fretting over whether or not they will be able to secure delivery services for the upcoming holiday season, Target offers same-day delivery in a number of hours by way of its own last-mile delivery service Shipt, something few others in the industry can claim.
It comes as little surprise then that total digital comparable sales rose 10 percent in the most recent quarter, year-over-year, even as shoppers began to return to physical stores.
“Target has taken the friction out of the shopping process, making it as easy as possible for customers to do business with them,” said Michael Lasser, equity analyst at UBS.
At the same time, Target’s in-store retail experience continued to gain traction, with new stores popping up (or soon to pop up) on New York’s Upper East Side, Hawaii and near Disney World in Orlando, Fla. There are also a number of smaller format stores in college towns and urban centers around the country, new flow centers and store remodeling projects in the works.
“Our properties team has had a busy year as they ramp up our remodel program following last year’s temporary suspension,” Michael Fiddelke, executive vice president and chief financial officer of Target, said during August’s conference call. “In addition, they’re working to open new neighborhood stores, distribution centers and sortation centers across the country. More than 100 remodel projects are currently in flight and we’re on track to complete about 140 remodels in 2021 and an even higher number in 2022.”
Fiddelke pointed out that the additional investments in real estate increase brand awareness. But even more relevant is not only Target’s vast number of stores, but that many of them are situated in off-mall locations. This has been key to attracting consumers during the pandemic, many of whom are still fearful about entering enclosed spaces.
It’s also simply easier to go to one store for all your shopping needs. Which is why Target’s assortment of merchandise has also served as a growth driver. The mass merchant sells everything from food to essentials to electronics to fashion to home goods, making it an attractive shopping option for consumers who want to consolidate trips. And once shoppers are in stores — whether online or in real life — it stands to reason that they’re more likely to buy more than originally planned.
But Target is also appealing to smaller brands. While landing in department stores was once the fastest route to generate excitement around a brand, many brands today are heading to Target instead to help them scale. The list includes luxury lingerie brand Journelle, Levi’s Red Tab products, Thinx period apparel, New Zealand beauty brand Monday Haircare and Priyanka Chopra’s new hair care brand Anomaly, all of which can be found at Target.
Through the years Target has also collaborated (and subsequently offered affordably priced products) from brands and designers such as Hunter, Lilly Pulitzer, Zac Posen, Anna Sui, Missoni, Phillip Lim, Rodarte, Jason Wu and LoveShackFancy.
In addition, the big-box retailer has been successful with luring in new customers by way of carve-outs in stores. Target opened its first 52 Ulta Beauty shops-in-shop in select locations this summer (100 units are expected by the end of the year), offering consumers quick access to prestige brands, such as MAC Cosmetics, Clinique, Tarte, Too Faced, The Ordinary, Tula, Mario Badescu, Philosophy, Pattern Beauty, Ouai, It Cosmetics, Shiseido and First Aid Beauty.
Earlier this month, Target revealed plans to more than double the number of Apple shops-in-shop from 17 to 36 ahead of the holiday shopping season. Target has also previously opened Disney shops-in-shop in stores.
There’s also Target’s in-house brands, many of which make billions of dollars annually in their own right. In February, Target revealed that its All In Motion activewear line had surpassed $1 billion in annual revenues after only a year on the market. It was also the firm’s 10th owned-brand to surpass that level in revenues.
“We’re proud that our brands are meeting guests’ evolving needs and sparking moments of daily comfort and joy for the entire family when they need it most,” Jill Sando, Target’s executive vice president and chief merchandising officer, said at the time.
In addition, Target offers contactless payment options — which further tames some shoppers’ fears of contracting COVID-19 — and self-service checkouts, which serve to both speed up the overall shopping experience and ease tensions around the labor shortage.
“One of the key attributes of well-run retailers is speed,” Lasser said. “In the stores, [Target has] done a great job of speeding up checkout, with a common cue and all the self-serves. The quicker you can process people, the quicker you let your customers pay you, the better you’re doing.”
But increasingly important to both would-be employees and consumers alike is how well companies and brands treat their staff — something Target has taken note of. Last year, the company (along with a number of other big retailers) raised its minimum wage to $15 an hour. This year the company said it would offer tuition assistance so employees can attend college. That’s in addition to six rounds of employee bonuses during the pandemic. Most recently, the company said it will pay associates $2 extra an hour for select hours worked during the peak holiday season as a “thank you” for their service.
“The temporary $2 extra an hour is in recognition of the Target team’s continued hard work to serve guests and the critical role they play in driving our business forward,” said a spokesperson.
The retailer has also ramped up its diversity and inclusion efforts. In September 2020, in response to the killings of George Floyd in Minneapolis (home to Target HQ), the company said it would increase its representation of Black team members by 20 percent by 2023. The following month, Target said it would contribute $1 million over the next five years to the National Racial Equity Initiative, a program that selects Black college students to be social justice policy fellows in Congress for a 12-month period.
Then, earlier this year, the big-box retailer said it would spend more than $2 billion with Black-owned businesses by 2025. That includes adding products from more than 500 Black-owned businesses across the assortment and partnering with more Black-owned firms, such as marketing agencies, construction companies, suppliers and maintenance facilities, among others.
There is also Target’s growing interest in sustainability, which includes designing 100 percent of its owned brands with regenerative, recycled or sourced sustainably materials by 2040; committing to contributing zero waste to landfills in the U.S. and net zero emission across both Target operations and the retailer’s supply chain within the same time frame and diversifying the company’s workforce to better reflect the communities it serves by 2030.
“Target is an incredible brand. They’re uniquely positioned in the market,” said Gerald Storch, CEO of Storch Advisors, a retail advisory firm, as well as the former vice chairman of Target. He’s also the mastermind behind target.com. “Post-pandemic Target only gets better.”