Five years ago, Target announced a turnaround strategy that ran counter to received retail sector wisdom. If anyone had any doubts about how well Target has executed on that omni-channel vision, the fact that the firm has just passed $106 billion in revenues for 2021 should quash them.
The $27 billion year-on-year boost was pretty evenly split - $14 billion in store, $13 billion via digital, the sort of omni-balance that so many retailers still struggle to achieve. It’s validation of that strategy that CEO Brian Cornell recalls nervously announcing five years ago, telling analysts yesterday:
Today, I stand in front of you, as the head of $106 billion growth company, with a long list of proof points that our strategy is working…Five years ago, we had 1,800 stores. I announced the plan to add stores and upgrade the stores we had. And I saw jaws drop and our stock price dive for a while. At that time, retail was about closing stores, not opening them. Many [analysts] questioned our approach.
Now, five years later, we have almost 2,000 stores and we are still re-modeling and building new stores. We also know the way we run our stores is the secret to growing digital sales. Yes, the way we run our stores is the secret to why digital is now 19% of sales.
A core capability today is personalization and relevance towards Target’s customers - its 'guests', as the corporate vernacular has it. This was a theme picked up by Cara Sylvester, the firm’s Chief Marketing and Digital Officer, who argued that Target stays “three steps ahead with our guests” to deliver “the most personalized omni-channel experience in retail”. She said:
The biggest differentiator when you look at Target’s digital experience [is that] it is designed with guests at the center. We take the friction out so that guests can experience Target on their own terms, which means we are guest obsessing at every touch point to stay a step ahead of evolving guest behaviors. For example, we are leaning into the love our guests have for our digitally-led same-day services because that’s sticking. Routines developed early in the pandemic are now part of their lives, things they cannot live without, but they look a little bit different today.
Target currently has 40 million ‘guests’ shopping across channels, she added, with omni-channel shoppers spending four times as much as their stores-only counterparts and even more compared to digital-only ones. Sylvester offered up some examples of how the omni-channel customer behaves in practice:
For one guest scrolling through the app, what she sees is curated especially for her. There’s her favorite items and great deals on her go-to essentials for weeknight dinners. And because she told us she’s a teacher, it really means something to her when she sees a Target Circle offer that makes her classroom supplies more affordable. Just getting ideas for what to pack in lunchboxes for her kids this week, too, maybe a little something from Good & Gather, and what’s more, her app experience helps make life easier as someone who might need a shopping partner once in a while.
Target also leverages media to get to know its customers better, she added:
A guest is shopping for essentials when he sees a message from a banner ad about Clorox Glad bags. He’s purchased them before, but other brands too. The headline benefits really resonate with him, so this time he adds Glad to his cart, he checks out and drives up. Purchases like this one contributed to a 40% higher return on ad spend for Clorox and a 25% increase in customer retention over the duration of the campaign.
Let me share the back story on this type of Target run: at the start of the pandemic, Clorox saw growth in guests buying their products for the first time and they wanted to retain them. So they turn to our media company, Roundel, to measure guest values and behaviors. Using that research, [Target's media arm] Roundel developed a series of A/B tests and Clorox used those key insights to optimize messaging and audience targeting.
She also pointed to the retailer's Target Plus online marketplace as another digital asset, arguing that this boasts significant competitive differentiation to rival offerings:
It’s invite-only, with vetted partners we have relationships with who are extending our aisles digitally. And because of our trusted and curated assortment, our guests aren’t sifting through thousands of pages of results for the one thing that’s going to bring them joy.
In fact, Target Plus is so seamless on the things that matter the ease of the experience, a relevant assortment and the benefits of RedCard and in-store returns, the majority of guests don’t know they are shopping with marketplace. It feels like Target. It feels personal. And the love for marketplace is only growing. In 2021, Target Plus grew 75%.
And then there’s the Target Circle loyalty program mentioned above, about which Sylvester enthused:
Circle is a way for us to deeply understand our guests and have a two-way connection with them, in addition to the fact that in less than three years, it’s become one of the biggest retail loyalty programs in the United States with 100 million members and growing. It’s also one of the new ways we are creating relevance at scale with a strategic shift from mass promotional offers to personalized.
She pointed to Target’s recent partnership with Ulta Beauty for in-store outlets as a good example of how this is working, citing the case of a “less engaged” customer who’s joined Circle via the Ulta alliance:
She’s able to seamlessly link her Ultimate Rewards account with Circle for all of the benefits. She’s thrilled that she can now find her favorite skincare brand and her go-to-mascara at her local Target store...We are getting to know these guests in Circle, leading to more personalized experiences that are serving up the things they crave, and back to this guest, other things she may love, like Wild Fable. So in such a short time, someone who only shop occasionally is now on the path to super fandom.
We see a growth horizon for years to come.
Just remarkable as an exemplar of omni-channel retail and how to do it. Cornell may have been nervous the day that he announced Target’s turnaround strategy, but five years on, there’s no doubt that he and his team had the courage of their convictions and have earned the kudos they deserve.