What Target Did That Retailers Can Learn From
“Turnarounds—however you define them—are hard,” says Retail Dive. “That’s especially true in retail, where tastes and the markets change quickly. If you are a retailer whose sales trends have turned negative, chances are your path back to greatness, or even stability, is steep.”
While our constantly fluctuating market has sunk numerous retailers, turnarounds can be done. Consider Target, for example. The once “cheap-chic” retailer–which was struggling just five years ago–has transformed into a model for how to avoid the retail apocalypse.
Here are 5 things Target did to pull off a successful turnaround:
1. Maintain Cash Flow
“Money equals time, and time equals options. It’s a very simple equation,” says Joel Bines, managing director of consulting firm AlixPartners. “The more money you have, the more time you have; the more time you have, the more options you have. That’s like E=mc2 for turnarounds.”
Businesses with strong cash flow enjoy the comfort and campacity to invest in growth. From building new locations and investing in research and development to renovating infrastructure and improving technology, businesses are capable of growth and improvement with positive cash flow.
“Getting to a position of excess cash flow helps your company operate in a strategic, proactive way, rather than a reactive, defensive way.”
According to Retail Dive, Target was fairly healthy financially. Other than investors abandoning it’s stock, the company was not fundamentally in any real balance sheet problem, and that gave them years to turn around.
2. Streamline Digital Infastructure
Part of Target’s struggle was that few stores had the infrastructure to support e-commerce, at least, not very well. As Fortune points out, “It wasn’t unheard-of for customers picking up online orders to find themselves killing time at cash registers while employees ran around the store collecting their items off shelves.”
Target’s C-suite finally recognized the need to “bring out the heavy artillery” and invest in omnichannel. “No matter how badly Target needed to grow again, CEO Brian Cornell says, “we couldn’t go down that path until we built some of those capabilities.”
The retailer spent billions of dollars to improve and expand its e-commerce capabilities, nudging shoppers toward store-pickup options (like curbside) that cost much less and helped to preserve its profit margins. The company also acquired Shipt, allowing it to provide same-day delivery in as little as one hour.
The brand’s digital investments paid off, despite Wall Street’s skepticisim, with an impressive 80% of Target’s digital comparable sales growth in the third quarter coming from same-day initiatives, including Drive Up, same-day delivery with Shipt, and Order Pickup.
3. Create Relevant Brick and Mortar Locations
Target’s plan to dump a lot of money into store renovations during the Amazon era got a lot of flack from shareholders. But the brand recognized that it’s stores were more suited to retail in 1962 (when the chain was founded) than the 21st century, and many of them looked run down after years of insufficient upkeep.
So the company began the long process of remodeling stores, with plans to remodel 1,000 of its 1,800 stores by 2020. Visible changes will include fancier presentation of apparel (mannequins sporting “looks,” instead of stacks of shirts on shelves) and better-lit, sleeker checkout areas, among other improvements.
According to Bloomberg, Target’s improved, easier-to-shop locations are raking in higher traffic and sales, and the benefits are persisting beyond the second and third years following renovations.
Toopan Bagchi, a former Target executive, remarks that Target is a great example of “transforming while they perform”—meaning, that the brand is getting the basics right while successfully preparing for an uncertain future.
4. Consider Private Brands
In addition to revamping stores and updating e-commerce, Target’s design team has developed over two dozen new in-house brands, several of which are yielding huge payoffs.
According to Bloomberg, the store’s brands are devlivering liberal profit margins compared to national brands, and Target’s steady stream of launches is prompting customers to return to the stores to see what’s new.
“On the owned-brand front, it really starts with providing product that we think the guests will respond to, and so curated owned-brand products that drive repeat purchase and loyalty over time. So we start there, and when that owned-brand product goes well, it translates favorably to the gross margin line.”
~ CFO Michael Fiddelke via The Motley Fool
Third quarter sales of brand-owned apparel and accessories jumped by double digits compared to competitors such as Kohl’s and Walmart that have struggled in apparel.
Target’s management credits its “distinctive owned brands” for the strong performance. To prevent backsliding, says Target’s Julie Guggemos, senior vice president for product design and development, the company will create a team to provide “proper governance” for brands, to ensure that each one is growing at the expected rate, along with polling customers regularly.
5. Stay Focused
Retailers today are rolling out initiative after initiative. The problem, according to Bloomberg, is that “they are not really executing them.” J.C. Penney’s fancy new concept store, for example, includes fitness classes, personal styling, and a barber shop, which analyst, Neil Saunders of GlobalData Retail, believes “does nothing to move the dial.”
“Perhaps more than any other retailer, Target has succeeded at capitalizing on new opportunities in the market, filling in the gaps as other retailers close stores and go out of business and responding to changing consumer demands.”
Target is focusing on it’s 25 mini-Disney stores that will capitalize on movie releases from Frozen and Star Wars. The company has also teamed up with Toys R Us and will be fulfilling the revived toy brand’s orders through its website.
Additionally, Target is stepping up its game to capture holiday sales, offering free shipping on thousands of items during the holiday season, as well as doubling the number of team members working in fulfillment so orders will be ready in the most timely manner possible during peak traffic times.
With it’s focus on toys and it’s push for the holidays, Target stands to deliver solid growth as its rivals struggle. Though its stock has already nearly doubled this year, the company is poised for a strong fourth-quarter performance…and beyond.
“Pragmatism is one of the most crucial elements to a turnaround,” contends Joel Bines. “Absolutely, positively, the very first thing that you do when you’re engaging in a turnaround situation is you have to have a ruthlessly realistic view of where you are and where you are going.”
This pragmatism is what helps organizations that are attempting a turnaround create a properly conservative, risk-adjusted business forecast.
Unfortunately, “most companies are unable to do that,” suggests Bines. “And the reason is that is usually so unbelievably distressing to retail executives and boards that they just would rather pretend like it doesn’t exist.”
Retailers who can follow Target’s example will be able to capitalize on the turmoil elsewhere in retail. “The winners and losers are breaking away from each other at an accelerated pace,” states Cornell.
Needless to say, customers will naturally gravitate toward the winners.
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