Target US is recovering, slowly

target-1024x512.jpg

With both total and comparable sales in positive territory, the latest results from Target US are undoubtedly another step in the right direction.

Unfortunately, the pace at which the company is moving is slow, as attested to by the modest 0.9 per cent increase in same-store sales. It has also cost the company a great deal to travel even this short distance, with both operating profit and net income down sharply over the prior year. Sales reached US$16.67 billion in the quarter.

All of this raises two questions. Is Target US on the right track? And, is the effort and expense of the company’s turnaround worth the potential reward? The answer to both queries is yes, albeit with some reservations.

On the expense question, it is a fact that no retailer of Target’s scale and size can implement a quick turnaround in today’s retail market. The process of reinvention takes time, effort and money – all of which have to be expended before any eventual rewards are reaped. In Target’s case, pressure on the bottom line has come from increased staffing costs, lower prices, and improvements to stores and products. In our view, these things should not be seen as costs, but as investments in the future of the company. Without them, Target’s future would be bleak.

The second question flows from this. If Target US needs to invest, is its current strategy going to deliver? Over the past few months, GlobalData Retail has undertaken extensive analysis on Target’s reinvention process, visiting new and refurbished stores, analysing sales patterns, surveying shoppers, and talking to staff. From this, we conclude that Target is making the right moves. However, we also recognise that there is room for improvement.

One of the most significant blocks of investment is that directed at store refurbishment. Here, Target is completely reinventing the in-store experience by creating a more open format with improved visual merchandising and a more logical layout. Decor, fixture design, lighting, and signage are also being upgraded. The early results of this process are positive. A store like Talking Stick in Arizona has gone from being a dingy, down-at-heel shopping experience to an attractive, modern space which is pleasant and comfortable to shop.

GlobalData Retail’s customer survey responses show shoppers have both recognised the transformation and are positive about it. Customer satisfaction for Talking Stick customers, for example, rose significantly after the conversion. Metrics like frequency of shop, amount of time spent in the store, and average basket size are all rising. However, they are doing so at a gradual pace which suggests the return on the improvement expense will only accrue over time. This is one of the reasons why store only comparables increased by a meager 0.1 per cent, with the rest of the increase coming from the digital operation.

Brand direction

Just as store improvements have been welcomed by customers, so too have Target’s new own brands. In apparel, Goodfellow & Co and A New Day are gradually attracting the attention of younger, fashion-conscious shoppers and clearly Target is starting to see better clothing sales as a result. However, this process is gradual: it is taking time to persuade people who have never bought clothing at Target to look again at the offer.

One slight concern with the new brands is the execution in store, especially for the Project 62 home label. As much as the styling and positioning are solid, the assortment available in most shops is limited, and the way in which it is merchandised is poor. It is almost as if Target lacks the confidence to push this range heavily. Target needs to be bolder with these new brand assets if it is to attract more customers and improve sales.

Pricing has been another area of expense, especially on the grocery side of the business. As much as this has helped to drive some sales, Target still lacks a comprehensive food strategy. This part of the operation will not see significant traction until Target comes up with much clearer points of differentiation – something that appears to be a long way off.

As much as Target is making progress, we believe it needs to be bolder and more creative. Many legacy issues, such as a lack of stock control which leaves frequent gaps on shelves, also need to be resolved.

All that said, the company is now in a much stronger position than it was at this time last year which bodes well for the holiday quarter and beyond.


About Retail News Asia

Retail News Asia is committed to providing local and global retailers with the latest news from the Asian retail market on a daily basis.

We have resources for everyone from independently owned business owners to online-only retailers and major chains expanding their reach throughout the Asian market. Retail News is “the news source” with over 50 weekly posts and 13,6 million readers.


CONTACT US

CALL US ANYTIME

Most read



Retail updates

Stay up to date of the lates updates and retail news from Asia.








X