Target drives volume with value message, tests fabric sourcing
October 23, 2008,
Minneapolis – At a time when Target Corp. admits to feeling its “weakest sales and profit performance” in its 46-year history, the 1,685-unit discount general merchandiser outlined at its annual financial analysts day its initiatives to support its business and drive growth toward a $100 billion goal in the coming years.
“In my first six months as ceo, Target has faced some of the greatest challenges I have seen in my 29 years with the company,” said Gregg Steinhafel, who is also president and became ceo in May upon the retirement of former chairman Bob Ulrich. “The housing slump, the deterioration of global credit markets, job loss and increased energy and food costs are contributing to a meaningful decline in consumer confidence. At Target, this environment had lead to the weakest sales and profit performance in recent memory.”
Steinhafel pledged: “We are not sitting idly by just waiting for them to improve.”
Target’s answer is a six-pronged priority strategy. At the top of this effort is growth – “We are focusing a significant amount of time and energy in both our credit card and retail segments to strengthen guest loyalty, drive greater shopping frequency, increase transaction size and generate profitable top line growth,” Steinhafel said.
That translates to a greater emphasis on the “value” communication to shoppers and leveraging “frequency-driving” product categories.
That is not to say more discretionary goods are being neglected, Steinhafel said. Once Target attracts consumers into its stores, the retailer uses smart displays and “trend-right” merchandise to encourage impulsive purchases – and this tactic is working, he said, adding, “Even in this economic environment, guests are buying ‘best’ assortments, like our designer and signature brand collections in selected categories.”
On that same vein, its rapidly growing website, www.Target.com, is being enhanced to do the same with improved online circulars, expanded product assortments and new mobile options.
Improve gross margin and profitability; expense productivity and capital; and superior guest experience represent initiatives two, three and four on this list.
Fifth is organizational effectiveness, or Target’s focus on attracting and developing the “best and brightest team members” to its company. And as Target’s related needs “become increasingly complex, we are fortunate to be able to turn to Target India,” Steinhafel said. Target India’s team – comprised of more than 1,000 members -- supports “a wide range of functions,” he elaborated, including systems development, analysis, reporting, auditing and creative work such as graphic designs and electronic media production. It is “helping us drive business results and allowing us to work around the clock,” he said.
Target is launching a raw materials strategy in select apparel categories that potentially could have implications for soft home.
Target Sourcing Services is “evolving our own fabric supply chain,” said Stacey Andersen, president of TSS. The project is expected to expand to all apparel departments over an unspecified number of years, she added.
Andersen also said TSS is developing a strategy to accelerate speed to market by giving vendors a more collaborative hand in developing product and is working to streamline sampling.
In marketing, Target has shifted 75% of its budget to emphasize value, according to Michael Francis, evp and chief marketing officer. “We know there’s a perception among some guests that our competitors’ prices are lower.”
Francis added that while Target never expects to “own” the low-price argument, it believes it can take share by focusing on value and solutions.
The Target Budget Bodegas the retailer opened for a few days in Manhattan last month served to spread the message. Coverage created 280 million media impressions, Francis said, “and this time it was Target’s incredible value that became the headline.”
Property development was an additional topic explored during the presentation. In his first presentation ever, John Griffith, evp property management for Target, discussed the retailer’s real estate initiatives, store prototypes, in-store layouts and format tests.
Target has just started testing a variation of its general merchandise format with an expanded food assortment that includes additions to its dry and frozen selections as well as fresh food items, such produce, meats and bakery goods. “We are greatly expanding the one-stop shop convenience our guests are looking for,” Griffith said.
Steinhafel said the company continues to test a store prototype that he called “a bridge” between the standard Target and Super Target formats.
Other topical news is Target’s slowed new store opening schedule, which for 2009 has been reduced to 70 units.
Doug Scovanner, evp and cfo, responded to a question about the credit card business by acknowledging that Target had had to twice modify its early 2008 statement that the year’s net writeoff rate for bad accounts would “not rise much above 7%.” He said it would likely be in the vicinity of 9%, and noted the company has tightened its credit card requirements.