Target Outlines Plans for Future Growth
Target has a multi-pronged approach for the future and
the chain is hoping its strategic plan will help it achieve growth for the
short-, medium- and long-term.
Yesterday the company announced in broad terms
what it is looking to do to achieve its goals, including:
- Opening 10 fewer stores in 2010 than last year while investing
$1 billion in the renovation of 340 existing locations; - Continuing to expand grocery offerings in general merchandise
stores; - Improving the customer experience in key categories, such as
beauty, home and consumer electronics (including video games); - Testing a smaller store concept with limited assortments
in space-constrained urban markets; - Expanding outside the U.S. to Canada, Mexico and Latin American
beginning no sooner than three years down the road.
“As we approach each of these growth opportunities, Target will apply the
same rigorous financial discipline that we have applied historically, ensuring
a returns-based approach and the prudent use of capital,” said Gregg Steinhafel,
chairman, president and chief executive officer of Target, in a press release. “We
are excited about the growth potential for Target and believe we have the
capital, talent, and right blend of discipline and innovation to deliver
meaningful value to our guests and shareholders.”
Discussion
Questions: Where do you see the greatest opportunities
for growth for Target? Where will it be challenged?
Target has positioned itself nicely to be the alternative to Wal-Mart (at least in the non-food business)–a little nicer selection at slightly higher prices, suggesting value but not cheap. I believe that is a good position to be in–clearly what Target is and a benefit to shoppers who don’t want to view themselves as Wal-Mart shoppers.
I see two challenges–keeping that positioning in mind as they move forward and re-thinking their limited assortment strategy. While I recognize the logistical benefits of reduced assortments, there are lots of shoppers who can’t find what they want at Target in the food and HBA sections and this limits the number of trips they take to a Target store. I’m not sure they have the ability to become a grocery store or a drug store in the way Wal-Mart has.
This plan seems conservative and lacking in vision. Yawn! Seems like they are in the trenches and content with staying there; not a semi-aggressive or even an assertive plan. It seems there are several points on the plan that should have been there years ago. Not the usual out-of-the-box thinking you see from Target Marketing.
The most challenging thing will be growing outside the US borders. I think that kind of talk was more for the press release because they made that goal very far into the future. In three years the press will have forgotten.
The growth area is the remodeling of Target into the P Fresh format and adding grocery. While Target still doesn’t do grocery very well, it does draw in customers for more frequent trips and higher basket sizes. This is going on right now so Target will see the benefits very soon. I’m surprise they are limiting this to only 340 stores.
The small urban format is again, just for the press release. Nice idea but the opportunities are so few, it will not have a material effect on the company. Still, a good idea.
I totally agree with Stephen that reduced assortments have caused shoppers a struggle to find what they want at Target in the HBC sections. This indeed limits the number of trips that consumers will make to the Target store. Target needs to think about HBC in a different way than they do other types of spaces.
Target and all big box retailers are going to find challenges in the North American market over the coming decade. The economic and demographic cards are stacked against them. Boomers are downsizing, houses aren’t credit cards anymore and the biggest market opportunities are both urban and multi-cultural. Not exactly the world as we knew it over the last 20 years.
The latest strategy declaration by Target fits what we’re referring to as the trend toward “fragmentation” of the big-box business model, which we’ll see much more of through this decade. The big, one-size-fits-all power center concept will begin to break down into smaller stores, urban concepts, and sub-segmented offerings as retailers attempt to connect with far more diverse and elusive consumer segments.
There’s no magic pill here. This is going to be a tough decade for Target and all other big box players.
To increase sales in the next 3 to 5 years, Target should increase grocery items in non-Super Targets and expand outside of the USA. Experimenting with smaller stores in tight urban areas is a bit risky.
Beyond 5 years, Target’s growth will center on how well they develop their former “fashion-value image” as being a better alternative to Walmart for spending discretionary bucks.
“Trips” will be key to adding to the topline. Traditional “Pull Marketing” techniques won’t be enough to bounce sales higher. Providing consumers with added reasons to be in the store will help big-box operators as the tortuously slow retail sales recovery takes place.
Grocery, which Target entered into the same year as Walmart, offers that upside to capture added “trips.” In-store and out-of-store marketing have to work holistically to build those topline sales.
I believe the key to Target’s success (short and long term) is in the nature of its food offerings. Everyone is selling food because of its traffic building nature. The Walmart model of selling food as a break-even to generate more profitable non-food sales has worked well. However, Walmart’s most successful food operation, namely the true supercenter, is one that includes the entire array of food, i.e., produce, bakery, deli, meats, etc. Its non-supercenter format with limited grocery does not draw the food shopper as a destination. Shoppers tend to pick up some food offerings, e.g., water, condiments, cereals, on that trip while visiting for a non-food item.
Walmart developed a very successful supercenter model that Target could emulate by doing the same thing on the food side as Walmart with the Target cachet/differentiation of “cheap chic.”
One short and simple plea…come to Canada soon, please! Target would do exceptionally well here, in my opinion. There really is limited competition in their category up here and the consumers would flock to it in droves.
A highly attractive element of the strategy at Target is that it is diversified and spreads risk across several distinct initiatives.
Concerning the improvement of same store sales, they might benefit from opening fewer stores and concentrating on the improvement of the customer experience in existing stores.
The smaller store concept is one that has been tried and has proven reasonably successful. Walmart’s new chain of smaller footprint grocery stores has been well received. Will Target combine their push into the grocery segment with the smaller store concept or seek to expand product lines in their Super Stores?
Expanding geographically is always attractive, but often hard to execute. Mexico is emerging from an even tougher year than was seen in the U.S. and results there may be slow to occur.
The grocery category is highly attractive and improving the customer experience in specific categories should prove to enhance Target’s differentiation from Walmart.
The strategy may in fact be an assembly of tests and the winners will be allocated further investment capital for 2011.
Target’s press release doesn’t address what I suspect is likely to be the biggest challenge; maintaining a position between Walmart and Kohl’s. The recession has exposed their position, especially in their biggest stores. They simply can’t stay with Walmart on hard goods, HBA and grocery (and thus traffic counts and sales per sq. ft.), their apparel and home goods assortments aren’t as compelling as Kohl’s and their prices aren’t all that much sharper.
Target’s TV ads are mystifying and completely at odds with their circulars and in-store experience. Their positioning as the fashion discounter made some sense before the recession, but with the intensified competitive pressures in a non-fashion driven, post recession environment, it looks to me more like being caught between a rock and a hard place.
As a consumer, my perception of Target vs. Walmart has done a 180 in the past 5 years. Target was my first choice and now it is second. I now see Walmart, thanks to the new Supercenters, as having better merchandise at better prices and a far broader and deeper assortment. There are three targets between my home and the nearest Walmart Supercenter, convenience is the only reason I stop.
I believe Target lost its cool edge with the selling of it’s department store division, and the great recession just made a bad situation worse.
I envision Walmart swallowing the Target customer as it moves upscale, and Kmart surprising us all and becoming the first choice for the truly desperate, lowest-cost-in-any-environment customer.
All of these moves feel like a big case of catch-up. Necessary and overdue, but still “me-too.” In a blog post last September, I expressed concern over the yawn-snore that retail has become as retailers’ focus lingers on correcting errors rather than making the store environment a more compelling reflection of the culture.
A couple of years ago, Target would have seemed poised to take the lead in this regard; as it stands, the newness of their designer brand strategy and pop-up store antics are wearing off and they risk losing the last vestiges of their groovy-dom as they swing wildly back to a focus on value.
Target was slow to acknowledge the need to incorporate a value message into their brand promise (as Greg Steinhafel stated, focusing on the “Pay less” part of Target’s “Expect more. Pay less” tagline), yet they were quick to execute and for that, they deserve tremendous credit; however, value and hip are not mutually exclusive (as vertical fashion retailers such as Uniqlo have proven). If Target doesn’t quickly reclaim its rightful place as a retail innovator, they will be leaving the door wide open for someone else who will.
I did not want to hear the term “remodel” from Target; “re-vision” would have been more resonant.
Has anyone else noticed that Target has lost its cachet? They seem to have a strategy in place to see how similar they can be to Walmart. Now their growth plans are based on being smaller, less unique, less remarkable. Who sold them on this plan? Seems as if this has disaster written all over it.
I agree the outline is broad…too broad; let me suggest something more specific: make my e-friends in Philly happy by opening a store in the (former) Strawbridge’s space. TOO specific? Well OK…
At the risk of keeping the pessimistic tone going, I’d have to “second” each and every voice here that sees this strategy–if that’s what it should be called–as defensive and unimaginative…I can only hope they really have a killer idea up their sleeve, and they’re trying to lull the competition into complacency.
Target has one decent hope for expansion and that is to perfect the only thing they do well–sell women clothing!
All of the upscale department stores and Branded women’s clothes outlets are gong to face price pressure for years to come. Target must take our economic situation and use their merchandising and purchasing skills to capture the pent-up demand that the mid and upscale retailers can’t supply at prices that today’s consumers find comfortable. The should get out of the grocery business and abandon every one of the tentacles in this absurd business plan. When times are tough do what you do well.
The surest way to fail is to wander off into territory that is handled well by a myriad of competitors. That only insures that you will become the butt of competitive jokes that tarnish your strengths.
Target’s success has been in building a particular image with the consumer. They established themselves as having better products at slightly higher prices than Walmart. This perfect position was the death of Kmart, who carried Walmart type products at Target type prices.
Target is a brand and just like any brand, great care has to be taken when making changes. Developing a small store with limited assortment is a concern. Do customers associate Target with limited assortment? On the grocery side, can they compete with Walmart? In grocery, they cannot choose better product lines than Walmart–Oreos are Oreos.
The other consideration is operations. It has been 3 years since I dealt directly with Target. But, back then, they did not believe that Walmart’s operations were that much better than theirs. They believed that Walmart pricing and success was that Walmart got better deals than Target. That simply was not true and in many case, because of Target deductions, Target got the better deals.
Walmart could not have achieved its growth in the U.S., let alone internationally, without incomparable operations. Better than expanding grocery, better than going international, better than limited assortment, Target (if they haven’t already) must be able to meet Walmart’s expertise in operations. Once they can do that, they can think of expansion of their business.
Target needs to focus on customer service. Take this opportunity to build more customer loyalty and commit more to local community events. Times like these are great to grab market share and they are in position to make this happen.
I and many of our BrainTrusters have written similar bidness plans for a multitude of retailers. This is just a boilerplate for market analysts. In response to the topic question, the greatest opportunity for growth for Target is honesty. Target currently owns the “cool” image among big box retailers. They need to dance with the one what ‘brung ’em. As a multiple CLIO guy, I applaud their TV campaign and encourage them to continue and expand it.
Of the goals they outlined, I think adapting to international markets will be the hardest. Opening fewer stores certainly is an easy goal to achieve. They have demonstrated the ability to add grocery and have gotten a decent sales lift in doing so. While their customer service is not equal to BIC they have a decent base from which to improve and building smaller stores should not present an insurmountable burden. The issue for them will be to the decrease each department the same or continue to have the small space for grocery in some of the urban food deserts.
After seeing with disappointment Target’s foray into perishables, I feel that it is this area that needs instant improvement. As grocery and center-of-store departments lose share in the supermarket segment, while perishables sales have risen 5%+ (Nielsen), Target should benefit by putting the same creativity that made it the merchandising king long ago into their fresh foods. This would provide them with a positioning that Walmart cannot claim.