Retail Intimacy, Part 11: Target On the Move

Retail industry observers may look back on a wintry day in early March 2015 as a defining moment for Target. During a presentation to Wall Street analysts and investors in New York, the company acknowledged a series of missteps that, by its own admission, led to a “de-coupling” of the retailer’s “Expect More. Pay Less” brand promise. One by one, Target’s chief executives took to the stage to unveil the details of a far-reaching turnaround plan that leaves virtually no stone unturned. If there were a single lesson to draw from this analyst meeting, it is that Target now knows exactly what it needs to do in order to regain the trust and admiration of its shoppers.Target’s investor-day conference represents the culmination of a lengthy period of introspection, one that began in the spring of 2014 and accelerated through the hiring of its new CEO Brian Cornell in August. Having gone through the rigors of “the most comprehensive strategic review ever conducted” at the company, Cornell arrived at the event with a clearly defined set of strategic priorities for its entire scope of operations. By the end of the day, his team had delivered perhaps their most convincing articulation to date of the way forward at Target.One thing is certain about the transformation: Target is going big. “This is not going to be a ‘nibble around the edges’ kind of exercise,” said Kathee Tesija, Target’s chief merchandising and supply chain officer. “Nothing is sacred. We are putting every part of our go-to-market strategy on the table, from our products’ quality to the aesthetic to price to presentation. We are moving faster than we ever have to stand behind the things that matter most to our guests.”Consolidating Around Its StrengthsTarget is not only moving faster, but it is also getting leaner. The company intends to cut several thousand jobs over the next two years as part of a $2 billion dollar cost-savings plan that Cornell said will “simplify the way we work,” while allowing Target to invest in areas that can grow its business, such as digital innovation and e-commerce. The company said it grew digital sales by 40% last year, and expects to maintain that same substantial growth rate over the next five years.In 2015, Target has earmarked roughly half of its $2.1 billion in CAPEX spending for supply chain and technology infrastructure. “With meaningful investments to enhance the flexibility of our supply chain – including rapid expansion of ship-from-store – we believe that greater scale and efficiency will significantly reduce the pressure from shipping costs, which could allow us to improve our gross margin on digital channel sales,” said Target’s CFO John Mulligan. Notably, Target cut approximately two days off its average shipping time in 2014, according to the market researcher StellaService.Target is consolidating around its strengths – focusing on its “signature” categories of Style, Baby, Kids and Wellness – as it adapts to tectonic shifts in the shopper landscape. The retailer sees its core “guest” as continuing to evolve from the stereotypical Boomer mom to a wider cohort of Millennials, families and Hispanic consumers. Research suggests that some of these demographic changes are materializing, albeit slowly. A Kantar Retail study, for example, found that during the period from 2008 to 2013, the percentage of Target’s Millennial (Gen Y) shoppers increased to 19% from 11%, while the percentage of seniors dropped to 10% from 15%. (The study noted that the large increase in Gen Y shoppers was partly due to changes in the composition of its shopper panel.)“It’s not just their guest. It’s where the market is headed,” said Kantar Retail analyst Amy Koo. “The shopper base is becoming much more digital, is younger and includes more families. Target understands it must connect with these diverse shoppers in order to succeed.” In Kantar’s 2014 year-end survey of all U.S. primary household shoppers, those who declared themselves monthly Target shoppers included a higher-than-average percentage of younger and more affluent consumers, she noted.Omnichannel 24/7Marketers who look to align with Target’s strategic priorities must consider the increasing role omnichannel plays in its shopper programs. “When Target gets behind a brand, they will support it in a big way,” said Evan Cross, director of shopper marketing at ConAgra Foods. “ConAgra is a company of 50-plus brands, but we also recognize that only a handful of those brands have the scale and ‘shopper fit’ to justify an omnichannel marketing support on top of traditional trade spending. When you have that fit, that’s when brands can play a significant role because of the inherent synergies that exist with the Target brand.”Based on those synergies, ConAgra’s Hebrew National brand became an important part of a meal solution for Target’s 2014 Summer Grilling program, which garnered shelf space in new refrigerated displays alongside Target’s prepared fresh deli items. “Hebrew National’s tagline is ‘A Hot Dog You Can Trust.’ Our positioning for the brand is all about an ‘upgraded experience’ and leveraging our Kosher point of differentiation as the gold standard for quality,” noted Cross.ConAgra worked closely with Target on a comprehensive omnichannel approach. Promotional messages were delivered through digital out-of-home billboards, print newspaper inserts and circular ads that ran from Memorial Day through Labor Day. A direct mail piece encouraged shoppers to text “grill” to Target to download coupons on their mobile phones. The Hebrew National brand page included a link to the coupon offer on Target.com, where Hebrew National ran banner ads and was featured on Target’s recipe portal.“It was all about driving trips,” said Cross. “We needed to be strategic with our omnichannel investment. The goal was: How do we get our items on the Target guest’s shopping list, and drive conversion and consumption to ensure repeat purchases?” Cartwheel offers for participating brands delivered strong redemption rates, and overall the program’s lift exceeded expectations, he noted.New Look for FoodTarget is in the process of undergoing a major repositioning in its $2 billion food business, and has renewed its commitment to providing more natural, organic and gluten-free products. “We lack a clear positioning [in food] and the shopping experience hasn’t matched what our guests expect of our brand,” Tesija acknowledged at the conference. “Food is something that our guests shop for while they are at Target, not why they come to Target. And that has to change.”Going forward, the onus will be on CPG marketers to craft ideas for shopper programs that reflect Target’s shifting priorities. “There won’t necessarily be fewer opportunities, but there will be different opportunities,” said Kantar’s Koo. “CPG companies will have to prove their reason for playing in the sandbox. That may not mean you have to provide unique or exclusive SKUs, but you give them a platform to support their initiatives and make sure your products are critical in those solutions.”Target’s food-related shopper programs are increasingly driven by insights that contain a strong emotional underpinning, and often consist of solutions built around new meal occasions and family sharing/entertainment. “We encourage our clients to think beyond their individual brands,” said Molly Hollenkamp, vice president and Target team leader at Catapult. “The goal is to support a strong solution that will increase guest engagement for the entire category, not just a single brand.”Those solutions can sometimes lead to unique marketing partnerships. For example, Mars Inc. teamed up with the Clorox Co. last fall on a program that combined two Target-only special-edition products: Glad storage containers featuring holiday-themed packaging, and M&M’s white chocolate peppermint candy. “M&M’s brand candies are not always top-of-mind for seasonal baking, so we sought to create a partnership with Glad storage to deliver a more robust baking solution: ‘Bake ’n Take’ your holiday treats,” said Elishaa Summers, shopper marketing manager at Mars Chocolate North America.The program included Cartwheel savings offers, cookie recipes in print ads and a dedicated brand page at Target.com. As part of a social-influencer campaign, bloggers shared ideas for baking, storing and gift-giving their various concoctions. “The functional aspects of the program – from coupons and discounts to time-saving – were important,” said Summers. “However, the true differentiation of a program like this is its ability to go beyond product marketing functionality. In this case, it’s the ‘together time’ that truly matters to the Target guest, and by inspiring her, our products can elevate themselves to an emotional level.”Back to StyleTarget is determined to get back some of the style cache it has lost in recent years. “Going forward, we have to regain our merchandising authority. We need to be cool again,” said Cornell during a recent quarterly earnings call. Or, as Tesija urged at the analyst meeting: “Let’s put the ‘Tarjay’ back in Target.”The company has stepped up its brand-building efforts, for example, by airing its new ad campaign during the recent “Saturday Night Live” 40th anniversary special, as well as by sponsoring a live performance from the band Imagine Dragons during a commercial break in the 2014 “Grammy Awards” TV program. “These new ads support more than ever what makes Target Target,” said Cassandra Lawin, vice president and Target team leader at Catapult. “Their surprising nature reminds the Target guest that they can always ‘Expect More.’”In stores, Target has begun showcasing its new furniture, jewelry and apparel collections in vignette-style merchandising, which includes using more mannequins to present outfits and displaying furniture pieces in carefully staged groupings. “Target’s clean, well-lit aisles have long been a differentiator at mass, but as our guests’ expectations have evolved, pulling a great look together from a sea of racks just wasn’t cutting it anymore,” said Tesija.Target is also shaking up its merchandising mix as it continues to test and roll out new Target Express and City Target store formats. “City Target stores are about 25% smaller than a general merchandise store, and they generate higher average sales per store,” noted Cornell. “In addition, they have a very favorable merchandising mix, meaning that gross margin rates in a City Target store are in the high 30% range, nearly 10 points higher than the rest of the chain.” A July 2014 Kantar study found a $32 difference between the average baskets of (the higher-priced) City Target and a suburban Chicago Target store.With all of these plans, Target expects to continue the momentum on its transformation in 2015. Its growing confidence was in full display to all in attendance on that March day in New York. “We know our ‘Expect More. Pay Less” brand promise remains relevant with consumers,” said Cornell. “We also know we are at our best when we deliver on both sides of that promise.”About the SponsorCatapult is a conversion marketing agency, where branding and buying are part of a total solution. Catapult’s data-driven approach identifies the core, actionable insights that inspire brilliant creative with the power to convert consumers into shoppers, shoppers into buyers, and buyers into loyal advocates. Catapult delivers channel-agnostic solutions that are brand savvy, retailer smart, and digitally enabled. Catapult is an Epsilon brand. Visit them at www.catapultmarketing.com and on Twitter @catapultmktg.

Retail Intimacy, Part 11: Target On the Move

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