Target To Go Aggressive On Its “Known For” Categories
Just a month into his job, Target‘s (NYSE:TGT) new CEO, Brian Cornell, announced that he is planning to aggressively expand certain categories that once provided Target an edge over other retailers. He said that the company will almost double the size of signature categories such as baby products, fashion, furniture etc., to rejuvenate its iconic “cheap chic” brand image. For this purpose, the retailer might also look to revamp its marketing strategies, which were mainly focused on groceries for the past few years. Mr. Cornell believes that these strategies will help the company regain its lost brand value, positioning it better to drive store traffic and compete with online retailers. [1]
Under its previous CEO, Target had gradually shifted its focus from its “known for” affordable fashion products to groceries and general merchandise, in the wake of growing economic uncertainty. Although the company was trying to elevate its focus on groceries to protect future growth, its brand image became diluted. In response, the retailer has needed a strong plan of action, given that it has been struggling in the U.S. for a while. And last year’s data breach has only made things worse. Brian Cornell’s plan to shuffle the company’s product portfolio is an important step on its front.
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Target was once known for its value-for-money, stylish and affordable merchandise, but it seems to have lost its essence due an aggressive push towards fresh foods. While this move made sense considering the success of Wal-Mart‘s (NYSE:WMT) grocery business, shifting focus from its core value proposition is proving costly for the retailer. According to Kantar Retail, only 32% U.S. shoppers visited Target stores and websites in March 2014, while 38% shoppers visited the retailer in the same month last year. Rising showrooming from Amazon‘s (NASDAQ:AMZN) customers likely added to the impact of this decline.
The contribution of Target’s signature categories to its overall revenue mix has been on a decline for the past five years. From 20% in 2009, revenue share of apparel and accessories declined gradually to 19% at the end of 2013. The share of home furnishing and decor in Target’s net sales came down from 19% to 17% during the same period. On the flip side, revenue share of food and pet supplies grew strongly from 16% to 21%. While the decline in revenue contribution of fashion and furnishing categories isn’t alarming, it clearly indicates that Target is shifting its focus from its iconic categories to groceries. This strategy hasn’t worked well for the retailer so far, which is evident from its recent results.
The New CEO Wants to Refurbish the Brand Image
Brian Cornell, who joined Target about a month back, is looking to bolster certain product categories that are likely to draw customer attention. He said that the company will invest more on baby products, including diapers, clothes and gear, along with children’s products including toys and clothes. Categories such as fashion, furniture, organic food and natural cleaning products will also get extra attention. Also, Target is making certain changes to its store layout to promote apparel, baby and beauty products. In July alone, Target converted 167 stores to an enhanced layout for baby products, bringing the total to 200. At present, 50 of the retailer’s stores have enhanced the presentation of apparel, and it plans to take this count up to 600 over the next couple of months. Target refreshed the display of its beauty products earlier this year as well, and has seen an encouraging response. Going forward, the retailer will look to add its rejuvenated formats to more stores. [2]
Target made a name for itself in the U.S. market by selling affordable stylish merchandise. However, with its aggressive push towards groceries, the retailer’s focus on its core categories diminished. With these efforts, Mr. Cornell believes that Target’s brand image will gradually recover.
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Notes:- Target Narrows the Bull’s Eye, With Emphasis on Signature Products, The Wall Street Journal, Sept 10 2014 [↩]
- Target’s Q2 fiscal 2014 earnings transcript, Aug 20 [↩]