{"id":106160,"date":"2021-02-02T22:42:16","date_gmt":"2021-02-02T22:42:16","guid":{"rendered":"https:\/\/fin2me.com\/?p=106160"},"modified":"2021-02-02T22:42:16","modified_gmt":"2021-02-02T22:42:16","slug":"target-is-winning-the-pandemic-race","status":"publish","type":"post","link":"https:\/\/fin2me.com\/business\/target-is-winning-the-pandemic-race\/","title":{"rendered":"Target Is Winning the Pandemic Race"},"content":{"rendered":"
Target might have mastered the perfect pandemic formula. It involves selling everything from fashion and food to home goods and essentials by way of brick-and-mortar stores, online shopping, personal shoppers, same-day delivery services, drive-up options and everything in between. <\/span><\/p>\n The big-box retailer is doing so well that it’s creating envy within an otherwise challenging retail environment. <\/span><\/p>\n “Target is operating on all eight cylinders. And if they had more cylinders they’d be operating on those as well,” <\/span>Craig Johnson, founder of Customer Growth Partners, told WWD. “Yes, t<\/span>here’s a lot of competition in the retail industry and everything else. But they are about as well positioned as anybody.” <\/span><\/p>\n<\/p>\n That competition includes direct competitors, such as Walmart and Costco, in addition to e-commerce giants like Amazon. These companies, unlike fashion and other retailers, were able to remain open throughout the pandemic due to their mix of essentials and discretionary items, including clothes. But when the crisis first hit, shoppers went into panic mode, stocking up on essentials like toilet paper, cleaning supplies and medicines. <\/span><\/p>\n Now, as the pandemic nears the one-year mark, and consumers have adjusted to the stay-at-home lifestyle, many are shifting their purchasing to a greater mix of discretionary items, rather than hoarding essentials. “That mix of goods at Target favorably positions it,” Johnson said. <\/span><\/p>\n View Gallery<\/span><\/span><\/p>\n <\/p>\n Target’s merchandising mix combines essentials and hip discretionary items. AP<\/span><\/p>\n It makes sense then that Target logged more than <\/span>$1 billion in profits in the most-recent quarter<\/span>, with a stock price up<\/span> nearly 65 percent year-over-year. The stock rose 1.10 percent on Tuesday to $185.59, leaving the mass merchant with a market capitalization of nearly $93 billion.<\/span><\/p>\n Target has also been able to hold its own against Amazon during the pandemic. Last October, after the e-commerce giant held its annual Prime Day, Target countered with its own “Deals Day,” incentivizing shoppers to start their holiday shopping early. <\/span><\/p>\n The <\/span>Minneapolis-based <\/span>retailer is also acquiring new customers with a plethora of private-label brands competing for space, the company’s extensive retail fleet, multiple fulfillment options and<\/span> <\/b>its continual push to become a better corporate citizen —<\/span> even as a growing list of competitors in retail close their doors permanently or file for bankruptcy. <\/span><\/p>\n “Target is an incredible brand. They’re uniquely positioned in the market,” said Gerald Storch, chief executive officer of Storch Adv<\/span>isors, a retail advisory firm, as well as the former vice chairman of Target. He’s also the mastermind behind target.com. “Post-pande<\/span>mic Target only gets better. In relative terms, Target is better in positive times, when the economy is booming and Walmart tends to do better when we’re in a more difficult economy. So Target is set up for continued growth.”<\/span><\/p>\n Here, six areas other retail watchers need to look at to understand Target’s momentum.<\/p>\n <\/p>\n Target’s drive-up services have grown rapidly during the pandemic. AP<\/span><\/p>\n Consumers can shop Target at retail, online, buy online and then pick up in stores, purchase through the app, schedule same-day delivery without leaving home, drive up and pick up their products without getting out of their cars or arrange for a personal shopper to do the shopping for them. <\/span><\/p>\n<\/p>\n “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. “And they’ve done a good job of merchandising, creating the right products, products that customers want, and at the right price.”<\/span><\/p>\n <\/p>\n Target fans can opt for a Shipt personal shopper to do their shopping for them. Courtesy Photo Target<\/span><\/p>\n Johnson added that Target’s fast-moving operation <\/span>—<\/span> whether it’s in stores, by way of drive-up services or online with same-day delivery in two hours <\/span>—<\/span> has only served to further benefit the company. <\/span><\/p>\n “<\/span>One of the key attributes of well-run retailers is speed,” he said. <\/span>“<\/span>In the stores, they’ve done a great job of speeding up check out, 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.”<\/span><\/p>\n Contactless payment options not only speed up the check-out process but also help put shoppers who may still be fearful of contracting the coronavirus at ease. During the holiday shopping season, additional handheld MyCheckout devices were rolled out to Target stores so team members could check out guests from anywhere in the store rather than wait in crowded lines. <\/span><\/p>\n The many same-day purchase options — including buy online, pick up in store; drive-up and delivery service Shipt — continue to grow in popularity, with drive-up growing the fastest <\/span>—<\/span> up 500 percent, year-over-year, in the most-recent quarter and <\/span>more than 700 percent, year-over-year,<\/span> the quarter prior to that. <\/span><\/p>\n <\/p>\n Target’s drive-up service grew by about 500 percent last quarter, year-over-year. Sipa USA via AP<\/span><\/p>\n That’s because people who are concerned about the coronavirus, may feel less apprehensive about pulling up to a store curbside. <\/span><\/p>\n Michael Brown, a partner in Kearney’s consumer and retail practice, added that it’s expensive for retailers to ship products for free and potentially have them returned for free. When a consumer drives up to a store to pick up items purchased, the retailer no longer has to pay for shipping. In effect, the shopper is offering “free labor,” Brown said. <\/span><\/p>\n “Success [in drive-up services] lies in retailers’ ability to incentivize consumers to come pick up their goods in the store,” he said. <\/span><\/p>\n Walmart’s drive-up services have also been successful throughout the pandemic. But Walmart’s services have been more heavily skewed toward groceries — long a core strength for the world’s largest retailer — while Target shoppers can pick up a more diverse array of products curbside. <\/span><\/p>\n “Target has only recently added fresh food to their drive-up services,” Lasser said. “But that’s great for consolidating trips. Customers don’t want to go to too many stores.”<\/span><\/p>\n Once shoppers are in stores — whichever store they choose — there’s a good chance they’ll likely buy more than originally plan<\/span>ned. Case in point: Target chairman and CEO Brian Cornell told reporters in November that while fewer customers were frequenting stores amid the pandemic, compared with pre-pandemic, there were still an average of about 30 million shoppers in stores each week <\/span>— <\/span>and they were spending more m<\/span>oney while there. <\/span><\/p>\n <\/p>\n A small-format Target store in New York City. zz\/STRF\/STAR MAX\/IPx<\/span><\/p>\n Target has a large real estate fleet <\/span>— <\/span>nearly 1,900 stores throughout the nation <\/span>— <\/span>which helps build brand awareness in different markets. <\/span><\/p>\n “They’re also an off-mall retailer and malls are struggling right now,” Storch said. “People are still concerned about going into stores during the pandemic. Target’s ceilings are higher; for a lot of people it feels safer.” <\/span><\/p>\n Additionally, the retailer has invested heavily in the last few years in its stores to renovate or remodel existing locations and in<\/span> smaller-format stores in urban areas, such as New York City, Chicago and San Francisco, in addition to college towns. In 2020, Target opened nearly 30 small-format stores. <\/span><\/p>\n <\/p>\n Target has nearly 1,900 stores across the nation. Sipa USA via AP<\/span><\/p>\n “Target has cracked the code in terms of small-format retail, much more so than Walmart, which has had two or three stabs at it and really hasn’t quite cracked the code,” Johnson said. “This year has been a little tricky, because of the whole college kids away from school, but that’s still a temporary thing. All those stores, when college kids are in school, those stores are performing very, very well. And those small-format stores have been a real home run in cities and dense urban areas.” <\/span><\/p>\n That’s because the smaller stores are not only increasing Target’s real estate footprint, in-store traffic and brand awareness outside of suburban America <\/span>— <\/span>and thereby reaching millions of shoppers with spending power who reside in densely packed spaces <\/span>—<\/span> but also because the retailer has been able to leverage both the small and larger stores as fulfillment centers, helping to fill e-commerce orders in local markets. In fact, more than 95 percent <\/span>of the company’s third-quarter sales were fulfilled by stores. <\/span><\/p>\n <\/p>\n Target grew across all categories during the holiday shopping season thanks to shifting shopping patterns. Many consumers began investing in a greater mix of discretionary items. Courtesy Photo Target<\/span><\/p>\n At the onset of the COVID-19 era, shoppers flocked to stores in search of essentials, from toilet paper to cleaning supplies to nonperishable food items. But Johnson said consumers began to shift toward a mix of more discretionary purchases around the holidays. <\/span><\/p>\n “Target is benefiting from this, much more than Walmart or Costco, with its makeup and merchandising mix,” Johnson said. “Costco is like 70 percent groceries; Walmart is about 60 percent a grocery store. Target is more like 20 percent a grocery store and its mix is higher up in discretionary categories, whether it’s apparel or home, than either of those other two big competitors.”<\/span><\/p>\n That mix of products <\/span>— <\/span>from fashion to food to home goods to essentials <\/span>—<\/span> makes Target a more attractive shopping option for consumers who may remain apprehensive about entering physical stores and therefore want to consolidate trips. It’s also simply more convenient to go to one store. <\/span><\/p>\n “You can buy everything you need at Target in one trip,” Storch said. “And Target is also a value player. There’s more value for your buck, and value matters in this economy.” <\/span><\/p>\n <\/p>\n LoveShackFancy partnered with Target as part of Target’s design partnership program. Courtesy Photo Target<\/span><\/p>\n Brands that once competed for shelf space in department stores are now making moves for a spot in Target’s ecosystem, both in stores and by way of its <\/span>e-commerce<\/span> business. Some examples include <\/span>luxury lingerie brand Journelle<\/span>, Levi’s Red Tab products, <\/span>New Zealand beauty brand Monday Haircare<\/span>, Ulta Beaut<\/span>y, Priyanka Chopra’s new hair care brand Anomaly and Disney, which opened about a dozen shop-in-shops in select markets in late 2019. <\/span><\/p>\n Through the years Target has also collaborated with brands and designers such as Hunter, Lilly Pulitzer, Zac Posen, Anna Sui, Missoni, Phillip Lim, <\/span>Rodarte, Jason Wu, LoveShackFancy, and most recently with Levi Strauss & Co., for its design partnership program. Plus, Target has a number of its own brands, such as the successful All In Motion activewear label. <\/span><\/p>\n <\/p>\n Target launched its successful All In Motion activewear collection in Jan. 2020. Courtesy Photo Arthur Belebeau<\/span><\/p>\n That mix of necessary and discretionary has perhaps benefited Target more so than either Walmart or Costco. <\/span><\/p>\n “Target has always had a good reputation as a merchandiser,” Johnson said. “It kind of lost its way some years ago. But now they got <\/span>their old mojo back from the Target chic from earlier this century. <\/span><\/p>\n “Walmart has improved in terms of its merchandise, whether it’s apparel or home,” he added. “It’s just that Target has improved more. And some of the strong categories that Target highlighted during its holiday update were home and hardline categories. And there’s a fashion component for most of the home category. And they’ve done very well on the adult beverage side.” <\/span><\/p>\n <\/p>\n Levi’s products sold at Target. Courtesy Photo Target<\/span><\/p>\n Storch pointed out that some of the brands haven’t even arrived in stores yet, such as Ulta Beauty, which will <\/span>debut in about 100 Target stores and online<\/span> in the back half of the year. <\/span><\/p>\n But he added, “<\/span>Target has always been about high-value products at a low price. Walmart is about low price above all else.” <\/span><\/p>\n In addition, with many shoppers unable to frequent malls, or even a stand-alone retailer during the pandemic, more consumers than ever began relying on big-box retailers for apparel and beauty needs. And while <\/span>Amazon continues to make strides in the fashion world,<\/span> Target had the advantage of being a physical store, where consumers could try things on. <\/span><\/p>\n <\/p>\n Target’s e-commerce business continues to grow rapidly. <\/span><\/p>\n The rapid surge in <\/span>online orders proved to be expensive<\/span> at the beginning of the pandemic. But Target seems to have figured it out, just in time for the holidays. <\/span><\/p>\n Earlier in January, <\/span>Target reve<\/span>aled holiday sales, with total comparable sales up 17.2 percent, year-over-year, for the November-December period, driven by skyrocketing growth in online sales as well as its leveraging of its physical store base to fulfill digital orders. Comparable digital sales grew 102 percent during the same period, year-over-year. <\/span><\/p>\n “Target <\/span>—<\/span> and with any of the other discounters or retailers in general <\/span>—<\/span> is enjoying rapid online growth. That’s not new news,” Johnson said. “But it’s higher <\/span>than either Walmart or Costco. I’m talking about comp traffic growth. By our metrics, we’re seeing a higher rate of both in-store and digital traffic at Target. And unlike both Walmart and Costco, Target is getting solid in-store traffic growth. That’s both raw traffic <\/span>— <\/span>the number of people that are in stores <\/span>— <\/span>and then its conversion rate has ticked up about a point. What that means is that net traffic is also up. So unlike Walmart that has more softer in-store traffic, but still has decent digital growth, Target has the best of both worlds: in-store growth as well as online growth.”<\/span><\/p>\n There’s also Shipt, the last-mile delivery service that Target acquired in 2017 for $550 million in cash. The same-day delivery service offers an added incentive for shoppers who may still be reluctant to try online shopping. <\/span><\/p>\n “The cool thing about Shipt is that you can get everything you need delivered to your house in a few hours,” Storch said.<\/span><\/p>\n <\/p>\n Last summer, Target increased its minimum wage to $15 an hour. AP<\/span><\/p>\n Target has invested heavily in its business over the last few years <\/span>— <\/span>not just in its fulfillment options, store renovations and merchandise mix, but <\/span>also in its workforce.<\/span><\/p>\n Most recently, the retailer revealed a fifth round of employee bonuses <\/span>— <\/span>this time to the tune of $200 million <\/span>—<\/span> raising Target’s total staff investments by<\/span> an additional $1 billion in 2020, compared with investments in 2019. That’s on top of the <\/span>$15 an hour minimum wage <\/span>the company instituted last July. <\/span><\/p>\n Last June, Target said Juneteenth — the day marking the emancipation of Black Americans from slavery — would be an annual company holiday moving forward. <\/span>The company’s headquarters will be closed each June 19, with stores and distribution centers remaining open. <\/span><\/p>\n Granted the majority of in-store and distribution center employees are Black, representatives from Target said hourly associates who worked received time and a half. Other eligible team members have the option to take the day off with full pay. Eligibility is based on hours worked, according to a Target representative.<\/span><\/p>\n In the wake of the killing of George Floyd last summer, followed by subsequent protests as well as riots and looting in Target’s hometown of Minneapolis, the retailer responded by <\/span>temporarily closing 47 of its stores<\/span> in the area. The company also provided basic first aid, food, water and other essentials to the Twin Cities community, while Target said it would engage local leaders and officials to learn how it can better serve the <\/span>Minneapolis-St. Paul community.<\/span> In addition, employees at the <\/span>2500 E. Lake Street Target store in Minneapolis, which was heavily damaged during riots and had to temporarily close as a result, received up to 14 days of pay during the closure, including COVID-19 premium pay. (The store reopened in November 2020.) <\/span><\/p>\n More recently, three Black teenagers were detained and handcuffed at a Los Angeles-area Target store while shopping in January. The company quickly released a statement apologizing. <\/span><\/p>\n “Target is performing about as well as any big-box retailer we’ve ever seen. It’s a very strong performance and it has all of the ingredients to be able to sustain that growth overtime,” Johnson said. “You have to give them credit; they’ve really done a great job. Not that Costco and Walmart are laggards. It’s just that right now Target is leading the parade here.”<\/span><\/p>\nRelated Gallery<\/h3>\n
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ENHANCED OMNICHANNEL\/ FULFILLMENT OPTIONS<\/b><\/h3>\n
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