What’s Next: A Love Letter to Target

A lot of retailers use Amazon as the example of the ultimate model they should be emulating, the pinnacle of success. What Amazon does, almost no one else can do. (And probably no one else should do.) Who should you be trying to learn from? Whose practices should you try to replicate? Target.

Target realized they too couldn’t compete with Amazon when it comes shipping, so they focused on a different experience. Target uses their stores as fulfillment centers, either to ship from stores to customers directly, or more often as is the gold standard - platinum, even! - of BOPIS (buy online, pick-up in-store) and BOPAC (buy online, pick-up at curb). With BOPIS especially, Target is able to already have sold merchandise before customers even walk in the door, and over 25% of the time, they end up buying more items (and spending more money) before they walk back out. 

Not So Fast…

Now let’s dial back the praise a little.  Target didn’t invent any of this.  Far from it!  Going as far back as 2013, investors on their earnings calls were clamoring for change at Target.  Pointing to many multi-channel retailers pursuing an “omnichannel” strategy and how far behind Target was — given that they were at 0% BOPIS and the gold-standard industry benchmark at the time was 30%.  My how the tables have turned!

Target has smartly adapted and innovated upon several purchasing and fulfillment options - including BOPIS, BOPAC, and same-day or next-day deliveries via Shipt, which is an independent subsidiary of Target (employing “personal shoppers” AKA gig workers to make quick deliveries). Shipt works with various retailers, not just Target. Using Shipt for their own last-mile deliveries, but offering the same service to other retailers too increases density and grows volume - improving their network and allowing Target to reduce their per-transaction cost over time.   Very smart.

Target’s success has been from investing in stores, not in massive separate sorting/shipping facilities. They’re continuing their strategy of focusing on small-format stores (with 30-40 per year expected over the next several years). In 2016, there were only 30 small-format stores; now there are over 140. How refreshing to see consistency in a company’s strategy! The smaller store formats still create a Target brand experience for the customer (which an automated facility certainly doesn’t) and allow inventory to be deployed closer to consumers. Target has also had success with college stores, focusing on an audience just before they really start the earning-and-spending part of their lives, and priming students to become life-long loyal Target shoppers. 

These smaller-format stores have other advantages.  Customers can get in and out more quickly.  The % of “house brands” purchased in those stores is significantly higher (I have not seen this number but I would not be surprised at 25+%) than traditional large-format stores.

Target’s Innovation Advantage

Target is good about recognizing their strengths. They’re willing to experiment, and they’re clever about setting goalposts for these experiments - often allowing them to redefine success when their initiatives yield unexpected results and successes. Target’s strategy about experimentation and goal-setting can be traced back to 2013, when they first really got serious about integrating online shopping into their model. They were admittedly late to the game on this, but one of the first things they said was "If this is going to work, our supply chain margins need to resemble a customer picking up something in the store." Then they set about making that happen. 

For a lot of companies, the period allotted for an experiment is too short, or the definition of success is too narrow, and executives are left with poor tools to determine whether or not to let an experiment continue. If something isn’t immediately a runaway financial success, it will likely get cut. Suspending initiatives prematurely, before anyone could really see if the idea had legs, is a great way to waste money AND burn out innovative thinkers. Target has been really good about NOT doing this - by being more open in their definition of success - as well as being smart about when to call things quits (RIP, Target Canada).

According to a recent earnings call, in 2020 Target stores fulfilled 95% of total sales- either pickup, curbside, or ship from store. That is staggering! That wasn't the goal - it was the result. Their goal provided them financial constraints around what "success" looked like for them, and where they saw flickers of success, they fanned the flames and nurtured those embers (i.e. continued investing in innovation). 8 years later, look where we are. 

Commenting on a recent blog post of mine, Stefanie Smith (a fellow retail/marketing consultant) made some points I just can’t not include in this love letter to (about) Target. She said of the recent earnings call, “It's a master class in bold clear vision, strategy, alignment, disciplined execution and unwavering commitment to the customer…” and noted that “the consistent praise from all presenters of the team members that make everything happen” really stood out. She also talked about some of Target’s people-focused efforts, like “a continued focus on affordability, becoming more relevant and welcoming for Black guests, and ambitions to adjust staffing strategies for more predictability for the team” - these are the kinds of things that aren’t necessarily visible in a chart of profits and percentages, but they are so important for the success of a company like Target.

One More Thing …

And and AND: Target has over 10 house brands that are now generating $1B each annually, 4 of which generate over $2B. These represent a third of their sales and an even greater percentage of their profit. This is great for their trajectory, uniqueness, and margin - all of which are necessary for them to both compete with AND differentiate themselves from Amazon and Walmart.

Target is the ultimate example of the “treasure hunt” shopping experience. Because the breadth of their merchandise is so expansive, a customer can come in with a specific list and still manage to find more items they “need.” Unlike Amazon, where if you’re buying a stand mixer, they might suggest additional attachments for that appliance, there’s no real “discovery” at finding something that catches your eye and takes you down a different aisle. At Target you never know what you’re going to find, and that’s part of the experience that customers love.

Target is smart about their price points too - everything feels affordable, even if it isn’t actually all that cheap. It means shoppers can be more casual about “impulse purchases” (I did not come into the store knowing I needed burrito-printed socks until I saw them and immediately put them in my cart) when so many things you might pick up are under, say, $40. The fact that you can go in to pick up a prescription, a bathing suit, chocolate-covered pretzels, and Drano all in one place and then realize you should probably replace your cracked measuring cup and hey that sweater is pretty cute, and suddenly the magic of big-box retail washes over you... 

The novelty factor is not to be ignored, especially when coupled with convenience. Amazon may be “the everything store,” but Target is an actual store that sells a little bit of everything - including some magic.  

What’s Next

Yes, it’s possible you dismissed Target’s story as just another growth story.

Don’t be so hard on yourself.

Everyone’s been paying attention to Amazon “relentlessly.” Patient, metrics-driven innovation - in whatever its form - is something that everyone: brands, retailers, and software companies would be wise to pay attention to.

What financial targets have you set for your innovation plans?

Next time,

• Rick