Target is Ready to Make a Move
Target has been keeping costs down in the first half of the year by managing
its inventory and limiting marketing expenditures. At the same time, the
chain has shifted its emphasis on value with a more concerted push on everyday
grocery items.
Now, with back-to-school in full swing and Halloween and Christmas approaching,
Target is spending substantially more on marketing to get consumers shopping
in its stores and on its website.
Douglas Scovanner, Target’s chief financial officer, said in a recent earnings
call, “We expect to spend more as a percent of sales in Q3 and Q4 this year
than we did last year. For the year, our marketing plan is right on. But
we have saved some money here in the front half for the expressed purpose
of being able to invest it in the back half.”
According to an AdAge.com report, Target believes that it is making
inroads in getting consumers to buy into the second part of its “Expect more.
Pay less.” tag line.
Gregg Steinhafel, president and chief executive of Target, said a price
matching test program in Denver and Orlando has been successful.
“We think this will be a terrific credibility builder and marketing umbrella
to reinforce that we have strong values both every day and on sale,” said
Mr. Steinhafel.
“We’re starting to see slight basis points improvement in our price perception
vis-a-vis where we were in prior periods,” he added. “So, we believe that
we’re on the right track. We have made the right adjustments. [We] believe
that over time we’ll continue to narrow that perception gap.”
Brian Sozzi, an equities analyst with Wall Street Strategies, is also seeing
some positives from Target. In a note to investors, he wrote, “Customer perception
regarding Target’s value in the marketplace has begun to tick higher. This
is critical as consumers consolidate store visits and focus on one-stop shopping.
The trick is to bring these customers in now, gain their loyalty through
a strong consumables offering, and then have them browse and buy discretionary
merchandise once the economic coast is clear. With a rise in the value perception,
spearheaded by the revival of a price matching program and more effective
marketing, Target’s comps should theoretically strengthen as the second half
of this year plays out.”
Discussion Questions: Are the changes Target has made beginning to pay off
for the chain? Where do you see the greatest opportunity for improvement?
Is Target better positioned than Wal-Mart to prosper as the economy recovers?
Target has made a lot of smart moves in the past year, but the question is when they will pay off in better comp sales. They have successfully managed costs and inventories through the recession, they have responded where appropriate to the Walmart price juggernaut, and they have started to put more focus on traffic-building food and consumables.
Nevertheless, the Target brand is still perceived as more “aspirational” than Walmart, which is the appropriate positioning. However, until cash-strapped consumers start spending more on the kinds of discretionary products that Target sells (apparel and home goods), the retailer will continue to lag behind Walmart. Perhaps some of the higher ad spend this fall should be focused on the businesses that will continue to be Target’s long-term strength.
Target exists because Walmart let them exist. Just a big game of corporate cat and mouse. I’ve been looking at the newly remodeled Walmart stores. Has anyone noticed they are copying Target in many ways? Seems Wal-Mart is taking what few good ideas Target has and playing copy-cat. I think Target will continue to blame everyone but themselves for their woes and take all the credit for their successes.
With the recent recession, the consumer is continuing to learn that Wal-Mart sells the same thing as Target except at much lower prices. When I read the ramblings of Target’s execs, it’s nothing more than the mouse’s well thought-out plans on how to escape the cat.
From a customer’s point of view, Target seems to have become more price competitive–particularly on the grocery side–but still has maintained its unique brand and PL image. Target is a somewhat stronger marketer and merchandiser this year but so is Walmart. Both companies have a loyal base without Walmart’s being the greater. That hedge funder, Ackerman, is now out of Target’s hair and that should eliminate that distraction. This fall and winter, we shall see who wins the most customers from the other as they promote heavily in their own fashion.
I think Target has to ask itself whether, long-term, it really wants to be a grocery retailer. They’ve put out a lot of capital reworking stores and expanding food departments. But is it working?
They got to where they are as a purveyor of (sometimes) cheap chic. They need to refocus on that and start sharpening up merchandising. It’s become a bit boring, if I may say so.
So, is their current strategy differentiating them in the marketplace or just creating another destination for cherrypicking consumers?
As I look at Target, I also sense that they’re getting squeezed. Start with the fact that they’ve positioned themselves as the fashion apparel and softlines discounter, and that discretionary categories are getting hammered generally. Then look at some of the price points that are starting to pop up in stores like Kohl’s and Penney’s.
Target’s management team has proven to be astute merchants over the years, but the changes in consumer spending patterns that have emerged (and that are not likely to reverse back anytime soon) are not playing to Target’s positioning and strengths.
It would be foolish to ever underestimate Target’s ability to adapt. After all, they have not only survived, but prospered against the biggest retail juggernaut this country has ever seen. In urban markets, for instance, they outperform Walmart handily.
That said, I would not expect to see their business (or any retailer for that matter) improve significantly this Fall. There is simply too much fear among the consumer population. That has to change for the retail business to grow. I do think they will slightly outperform the overall industry as more and more consumers trade down (look at TJX).
Target is doing what they have always done best–understand the environment, adapt to it, and make the best of it.
In the back to school race this year for items we sought for a college student (The things that a Mom with separation anxiety said were absolute must have…) Target scored big against Wal-Mart and Meijer in our trips this year. Mom’s verdict on the entire shopping experience was that Target was very surprising both in selection and price. (And, believe me, she knows price.) Meijer was the biggest loser, surprisingly, in both selection and price. From Dad’s point of view, Target scored on overall store experience.
Target is definitely doing a great job in positioning themselves for the current economic conditions and for the economy’s rebound. They are much improved over last year and even a noticeable improvement over Christmas when they were a disappointment. I’ll be interested to see how they do in comps at Christmas time this year versus last. That will determine if their changes are going to really pay off. Until then, they have reengaged my interest.
Postponing marketing spending during lean times then heavy-ing up when the market improves is a simple strategy that surely helped buoy Target’s recent earnings.
And same-store sales will surely look good following last year’s lackluster holiday season. This is yet another reason why I am not a fan of the same-store sales metric–it leads to delusions of success.
Target needs to face the reality that it probably shares 80% of its shoppers with Walmart, and 100% with its supermarket competitors. It’s a share-of-wallet game, and Target needs trip frequency to win.
So I’m more interested in seeing how Target will make its grocery offering compelling enough to make its stores a preferred destination for home pantry managers. Advertising competitive prices will help some, but the merchandising had better match the promise.
CPG brands that have maintained marketing and advertising spending have generally seen positive results in market share and volume. The reality is that in a fragmented media environment in which most marketers are cutting expenses, increasing spend will capture a much higher proportion of attention. So….Target should see significant impact from the the increased spend in the second half of the year. From a strategic point of view, the first half for retail is a write off anyway. So managing expenses, curtailing discretionary spend, and fine tuning the consumer message were perfect corporate foci.
Will it pay off? Yes, it will. Not just because the comps are soft. The message is well targeted, simple, and supports the in-store and merchandising experience. As I have noted before, marketing slogans for retailers are only as good as the integrity behind the words. WMT’s resurgence was strongly influenced by the coordinated ability of the organization to deliver on its promise to the consumer. The same is true for Target.
Yes, aspirational shopping is much less important than in prior times. Yes, store environment or the “shopping experience” has declined relative to value. Still, both of these exist in the consumer psyche, and Target dominates the mass market in both. Look for solid gains in the second half of the year, assuming the economy neither rebounds nor tanks further. If employment begins to improve, Target will capture a disproportionate share of the increased spend.
Good move. Appropriate, well thought through, and based in best practices for consumer marketers.
I conducted a retail safari through Bentonville this week with clients and colleagues. Bentonville is of course home to some of the most pristine Walmarts in the country and one of Target’s latest and greatest P-Fresh stores recently landed here as well. Viewing both in the same day is always interesting since these stores lack the visual, aural (and sometimes olfactory) distractions that are common in other markets.
Target is boldly on message with value: Seemingly endless plays on words throughout the store . . . “More trendy less spendy,” “Saving is always in style,” “Fall’s best for much less,” “Play up the look play down the price.”
In consumer electronics, promises to “match the prices in any competitor’s print ad” are front and center. To me, the overall vibe feels defensive and over-stated. Walmart’s value proposition actually comes off as being understated by comparison, perhaps because it is more mature and understood.
Target’s big back-to-school statement was in the BACK of the store . . . lots of cardboard cut-outs and bins that looked like an afterthought. Walmart executed a completely color-coordinated theme throughout the store in every major category from CE to housewares to apparel; a bright, happy palette of lime green, deep pink, bright blue popping up all over the store. Topping it all off was Walmart’s now-impactful rollout of its new Great Value program and packaging which showcases the brand in every food aisle. Target’s Up & Up revamp looked a bit spotty by comparison.
I did like the looks of the Shaun White program in Boy’s; it was nice to see Target make a fashion move outside of women’s/girl’s. All in all though, I have to give Walmart the edge. Target still is under-delivering on its brand promise. I don’t see a single compelling departure and the value call-outs (and grocery attempts) feel like so much catch-up at this point. Who’s me-tooing who?
Great thoughts guys. I consider myself a regular Joe, and in the past have perceived Wal-Mart to be the low price leader. However, I must say, doing some comparative shopping Target has closed the gap. In fact, with the reinstatement of the price match program the gap seems closed for now. The thing is that Target must market effectively so consumers realize the value, and I believe they will do so for the second half of 2009.
Longer-term something to chew on is, where is retail going? In my opinion, retail is heading to one-stop shopping where moms and dads could buy a week’s full of groceries and a new ensemble for the kids. I view favorably Target’s consumables expansion, especially now when the cost of capital is still depressed.
Only time will tell!
Target has made strong strides in the past 4 or 5 months on focusing their efforts. Nearly all retailers are “weaker” today than they were a year ago. Earlier this year, they were dealing with some board of director intrusions. That effort, perhaps helped them focus on some key issues like price perception, added grocery, trip count, etc.
They held their fire, and have run through some of the toughest patches. “What doesn’t kill us, makes us stronger”
And, Target has a group of highly talented associates at all levels of the organization, and in each of their departments — merchandising, marketing, store operations, finance, allocation, etc. Each of those groups appear to be running stronger now. Their comp store sales are going to improve in the next 90 days vs. the trends that they have been running for the simple reason that they have talent depth that is focused on the Consumer.
Target should just change it’s name to “Gap Wanna Be.” They have devolved into a rag retailer. It’s the only part of their store that is complete. Every other department is hit or miss. They totally ignore men and seem to be spending all their marketing time time trying to be a “fru-fru” chick haven.
Walmart could spend a couple of million advertising in hairdresser magazines and take enough business away from Target to put them out of business. However, Walmart is having so much trouble trying to keep stock in their stores that they don’t have time to worry about Target. I don’t think Target knows who they are or where they are going. Look for them to die–in “good taste,” of course.