By Stuart Lauchlan

March 6, 2024

Once one of the bellwether omni-channel retail brands, Target had a tough time in 2023 and 2024 looks to be a lackluster one as well in terms of performance. But the firm has re-booted itself with some counterintuitive thinking in the past and yesterday laid down some long-term plans with a decade-long set of goals for growth. 

This coincided with a mixed bag of quarterly and full year numbers. On the upside, the firm reported net income of $1.38 billion, up nearly 60% year-on-year, although much of this was attributable to cost-controls. On the downside, it turned in its first drop in revenue in seven years with comparable sales down 4.4% across stores and digital channels. For the full year, Target’s net income increased 48.8% to $4.138 billion, with revenue down 1.6% to $107.4 billion.

But while the retailer was cautious in its outlook for the coming fiscal year, CEO Brian Cornell put his best foot forward, laying out his ten year plan. Why ten years? Cornell says: 

In part, because that feels like a long enough time frame to be meaningful. But it's also because we look at longer horizons when evaluating growth potential for investments, like new stores, supply chain, and other assets. And it's good to ask, what else would need to be true for those investments to succeed? 

Long-term thinking has been important to Target in the past, he explains: 

By designing for steady growth before 2020, we were positioned to absorb exponential growth during a demand boom that none of us could have anticipated. Even now, the country and the retail industry are in a prolonged post pandemic return to normal, which has been nearly as unpredictable as the pandemic itself from a consumer, social, political and economic perspective. By staying agile as a team, and by continuously refining our approach and innovating, we've been able to navigate this time frame. In fact, if you think back to our earlier algorithms and long-range plans, we're well ahead of where we believe we'd be just a few short years ago. At the same time, we recognize this is a unique moment to clarify our road map for growth.

More stores

A critical component of that roadmap is continued store expansions, with 300 new outlets planned over the next decade. During Cornell’s tenure as CEO, some 200 stores have been added to the real estate portfolio, while 1200 locations have had major remodels. Stores matter, he insists: 

While retail is decades in the new digital era, on any given day two-thirds to three quarters of all US shopping is still done in stores. And thanks to the stores-as-hub model we invented in the last decade, nearly all Target shopping, including our significant digital penetration growth and our $30 billion plus in revenue growth, was made possible by our stores. So, if you think store shopping will wind down anytime the next decade, we'll politely disagree on that point once again.

There will be more investment to come on optimizing supply-chain and technology. Cornell explains: 

In less than ten years, we've created, acquired, and constantly advanced sortation centers, upstream distribution centers, food distribution centers, and a steady stream of replenishment, technology, and logistics innovation. At least ten additional supply chain facilities are in the pipeline and will be operating within the next decade.

Underpinning all of this is our long standing and ongoing investment in technology. This includes a leading team of engineers, data scientists, and product managers focused on further integrating AI and machine learning and driving early adoption of generative AI, all geared towards making it easier for our team to best serve our guests across both the digital and physical assets.

It all costs, but it is essential, he argues: 

Here's the takeaway - without huge investments in stores, supply chain, and tech, there is no drive-up or order pick-up, which were monumental growth drivers during covid and today. And without stores, supply chain and tech, and providers like UPS, FedEx, and Shipt, there is no home delivery, which is ready for a step change in guest acquisition, satisfaction, and loyalty. As we move forward, we'll leverage our 2017 acquisition of Shipt to help us build unmistakable recognition for Target same day delivery.

Changed days

Shopping has changed over the past decade and continues to evolve, says Cara Sylvester, Target's Chief Guest Experience Officer: 

Gone are the days when people would follow a consistent and well-defined path from discovery to purchase. Today, shopping is non-linear and simply a part of the general ecosystem of our lives. Instead of a standalone experience that feels planned or predictable, shopping has become immersive, always on, and fully integrated into how we all go about our days.

A large portion of US consumers, about 40%, start their purchase online, and 20% start on social platforms. And those are just the people who are actively looking to shop. Many more are enticed to shop by the inspiration they find scrolling their social feeds for hours every day. This is expansive retail - non-traditional entry points, seamless transition between stores, online and social, and fully in tune with what shoppers want and need. 

The guest experience of shoppers who come through “our digital front door” is as crucial as that of the physical store experience, she adds: 

Last year, shoppers visited us more than 6 billion times on our digital channels looking for the same warmth, newness, and discovery that greets them when they walk into one of front doors. In fact, more than half of guests who make a purchase in our stores have visited our app or our site that very same day, reinforcing how shoppers move fluidly from physical to online and back again. Target is uniquely suited to be there for our guests when inspiration strikes because of our agile technology and the pathways we create between stores, digital, social, marketing and more.

She points to 2023’s Holiday season as an example of progress made here: 

In 2023, we transformed our digital experience from a utilitarian shopping platform that was one size fits all to one that is filled with warmth, greets you personally just like [a store associate] would, and delivers a custom blend of newness, trend, value, and ease just for you. And it's not just what the guests see, but what's happening behind the scenes to power these personalized experiences. We're using generative AI to power our product detail pages to provide more friendly and relevant explanations of what guests wanna know about our assortment. AI also powers features like Shop the Look and our Get It Now assistant, which lets you know when items in your cart are available for pick-up at a nearby store.

Loyalty

AI will also assist shape the firm’s approach to loyalty programs is also getting a fresh approach. Target Circle 360 will launch next month, with customers paying a yearly fee - $49 for Target credit card holders - for perks, such as free same day delivery on certain orders. The current Target Circle loyalty scheme, which is free of charge and has 100 million members, will be overhauled to include new features, such as automatic application of member discounts in the app. 

Sylvester says that the reason for the changes is based in part on acknowledging that there is “some friction in the program today” as guests like Target Circle, but ought to love it. As such, she sees the overhaul announced yesterday as an ongoing process:

This is just the beginning for Target Circle. Our AI powered models will continue to deepen our relationship with guests and enable us to deliver one-on -one personalization at scale. And with this new foundation in place, we'll continue adding benefits and perks based on what matters most to our guests, like exclusive partnerships, product offers, and more so they can get the most out of shopping at Target. 

My take

Recognizing that we needed to clear the volatility and the challenges of the last two years, our team buckled down and said, 'go time'. But in recent weeks, I've seen the spelling expand by two letters, and I've seen the ambition expand even more than that. What our team is talking about now is 'grow time'. 

There’s no doubting the thought that’s gone into this or the long-term nature of the planning here that is commendable in itself. And for once, the short-termists on Wall Street seem to get the message, with Target’s stock soaring yesterday.

So the question now is, can the firm pull this off? Well, as Cornell has pointed out many times in the past, it’s been here before, investing in stores when all the retail experts and commentators were advising against, and making that pay off. 

What is crucial here is keeping an eye on what matters the most - the shopper and how he or she wants the retail experience to be, then meeting - and surpassing - those expectations. That’s the ongoing challenge that so many omni-channel retailers have failed to keep on top of. Target looks as though its putting more thought into this than most as the Vaccine Economy retail sector realities take hold.

Bottom line -  shopping isn’t the simple thing that once it was. Dynamic thinking is required to be genuinely omni-channel. As Sylvester puts it: 

We talk a lot about digitally-influenced sales. We know how consumers are shopping today and, so many of us are starting, even if you love shopping and only purchase in stores, you're using our app to check out what's new, to see if something is in stock, etc. So, we understand the power of digitally-influenced store sales. What we also see though is the power of store-influenced digital sales, because we know some guests are browsing in stores and actually are pulling up their app right while they're in the store and having impact digitally.

Onwards!