Target CEO Outlines Plans for New Stores, Grocery Biz

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Target CEO Outlines Plans for New Stores, Grocery Biz

By Meg Major, EnsembleIQ - 03/02/2017

On the heels of posting its third straight quarter of lower same-store sales and a 4.3 percent decrease in 2016 sales, Target executives remain bullish on its future prospects, despite its less-than-stellar performance.

“We’re investing more than $7 billion in capital over the next three years, and about $1 billion in annual operating profits beginning in 2017, to grow sales faster, gain market share, adapt to guests’ rapidly changing preferences and give them even more reasons to choose Target,” said CEO Brian Cornell, at the retailer’s financial community meeting earlier this week.

“We’re investing in our business with a long-term view of years and decades, not months and quarters,” according to Cornell, noting that the Minneapolis-based retailer is “putting digital first and evolving our stores, digital channels and supply chain to work together as a smart network that delivers on everything guests love about Target, including more than a dozen new brands to be introduced over the next two years. We’re confident our strategy meets the challenges of today and will lead us well into the future.”

During the investors’ meeting, which took place shortly after the Minneapolis-based retailer reported its dismal Q4 earnings, Cornell covered a wide range of strategic goals envisioned for the coming years, including plans to open 130 small format stores by 2019 alongside an aggressive agenda to “reimagine” another 600 of its existing 1,800 national locations, which Cornell noted are presently located within a 10-mile or less radius of three-quarters of the American population.

Maximizing More Convenient ‘Target Runs’

With 30 small-format stores slated to open in 2017, Target will double its presence in dense, urban markets and college campuses. In addition to serving as neighborhood online fulfillment hubs for more convenient “Target runs,” Cornell said the compact stores “will also help us reach guests in areas we couldn’t before, and connect with college students at a time when they’re developing brand preferences. “Our stores continue to play a critical role,” he affirmed, “as places guests go to discover and be inspired.”

The category most in need of inspiration at Target, as far as PG’s core audience is concerned, is grocery, which Cornell also touched on during the investors’ summit.

“We're very focused on improving our grocery performance [and] we haven't just been standing still. We've made significant progress in procurement [and] supply chain” to ensure improved assortment and elevate the in-store experience. By studying the results of its test stores in Los Angeles and Dallas, Cornell pledged that the chain will follow-up “immediately with the right investment in pricing to make sure we are competitively priced everyday” in key categories. “We've got more work to do and we're certainly not satisfied with where we are, but we have been making progress,” he said, citing fresh produce as a bright spot.

Cornell: ‘Embracing Who We Are’

Devoid of “a full-service grocery experience [which lacks] the full assortment of experiences and services that many of our full-line competitors do,” Cornell said the chain will focus on playing up its strengths of “a great self-service convenient experience,” which he said “starts with the right quality, the right assortment, the right in-store experience and great value. We've got to make sure we are supplying those products every single day to make sure the freshness is there. We are embracing who we are, and we want to make sure the guest knows that while they're shopping at Target, there is no compromise. We've got to build trust and make sure that while they are shopping for their baby, picking up a toy for a Saturday birthday party, picking up something new to wear…that they have confidence in the selection and breadth of food products we offer.”

To spur improvement with its grocery category, industry observer and PG contributor Kurt Jetta, founder of TABS Analytics, believes Target would be wise to heed the following trio of suggestions:

1. Abandon Fresh: Products that have high spoilage need people to come into the store frequently in order to move merchandise. According to household panel data from Nielsen, Target just does not have the store traffic to sustain a viable fresh produce section. The average grocery store customer visits the store around 20-25 times per year. Target’s average customer averages less than 10 trips per year. There are far fewer opportunities to convert them to a fresh produce purchase.

2. Curtail the Organics Kick: Target is a mass-market retailer. More than one-third of U.S. consumers shop for food products at Target. Only 11 percent of U.S. shoppers consider themselves regular organic buyers, so organics are a niche that doesn’t sell very well in mass market. Sure, 20 percent of Millennials consider themselves heavy buyers of organics. The problem? Millennials aren’t the core target for food, nor are they Target’s core audience. According to TABS Research, households with kids are twice as likely to be heavy shoppers for food and those households skew a bit older, usually 35-44.

3. Stop being a Self-Hating Promoter: 90 percent of all U.S. shoppers use at least one deal tactic regularly for their food shopping, and 63 percent use at least three tactics, such as clipping coupons, buying private labels or reading the circular. Sales of consumables products, in particular, are highly reliant on these consumer offers. In fact, over one-third of Target’s sales come from extra volume generated from these deals. When Target fails to offer compelling promotions to their consumers, it sacrifices store traffic, incremental sales on the promoted products and larger market baskets overall. Heavy deal shoppers are the heaviest shoppers in the store. If Target doesn’t want to meet its need for a good deal, there are any number of retailers out there that will.