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Amazon Almost Killed Target. Then, Target Did the Impossible

In 2017, everyone was laughing at Target.

Sales had continued to slide. Stores were in disrepair. And company leaders were struggling to adapt to the changing behavior of consumers–many of whom were shopping more and more with online retailers like Amazon.

As fellow retailers Macy’s, J.C. Penney, and Gap collectively shuttered hundreds of stores because of similar struggles, analysts said Target should do the same.

But Target executives, led by CEO Brian Cornell, had a different idea. The key to revitalizing Target, they said, was to go on the offensive.

So, in March 2017, Target made a huge announcement: It planned to invest over $7 billion in a turnaround strategy that would include:

  • remodeling existing stores (and opening smaller ones in urban areas);
  • introducing new, private label brands; and,
  • enhancing its digital shopping experience.

Wall Street thought the plan was a disaster. On the day of the announcement, Target suffered its largest stock plunge in almost a decade.

But fast-forward to today, and Target is thriving. First-quarter results for 2019 beat analysts’ expectations. The store’s private-label lines are exploding. And as comparable store sales continue to rise, the stock price is trading at an all-time high.

How did Target do it?

A close look at the company’s brilliant turnaround strategy reveals some major lessons for businesses of any size.

Here are some highlights:

Think long term.

When Target announced its turnaround plan, Cornell expected backlash. He knew investors would hate the idea of stuttering profits for the foreseeable future.

But he held fast to his plan. “We’re investing in our business with a long-term view of years and decades, not months and quarters,” Cornell said at the time.

Cornell knew this reset was necessary because so many Target stores had fallen into disrepair over the years. And while the company was making efforts in e-commerce, it simply didn’t have the infrastructure to deliver.

Contrast that with today. Target has remodeled hundreds of stores, and it has built a hundred “mini-stores” in urban areas like New York and on college campuses (with plans to open dozens more of these every year for the foreseeable future). The company also invested heavily in its e-commerce operations to great benefit. (More on this in a minute.)

By focusing on the long-term health of the company instead of short-term financial performance, Cornell took a page out of Jeff Bezos’s playbook–and it clearly worked.

Leverage your strengths.

Target’s e-commerce infrastructure needed a complete revamp. But could the company really compete with Amazon and Walmart, which were years ahead of the curve?

It could–by doing things a little differently.

Target execs knew that as popular as e-commerce has become, the majority of retail shopping still takes place in physical stores–especially when it comes to clothing.

So Target chose to focus on a model that would maximize its strengths. Known as “ship-to-store,” Target’s e-commerce platform turns physical stores into mini warehouses for online customers. That makes it possible for customers to order a product online, and then pick it up in a store on the same day.

Ship-to-store reduces Target’s shipping and handling costs, and takes advantage of already existing space in physical stores. And if a customer decides to do some shopping while already there at Target, the benefit is two-fold.

Fill a gap.

Consumers had once affectionately referred to Target as “Tarzhay,” an ode to products and style that were affordable yet a step above those offered by competitors like Walmart. Over time, though, Target had created too many labels that were clear misses.

“Tarzhay” had lost its cachet.

But nobody had stepped up to fill that gap of stylish, exclusive clothing for lower prices. So, in an effort to rebuild its reputation, Target doubled down on its exclusive brands. The company has launched 20 private-label lines over the past three years, including brands for modern furniture, kids’ clothes, electronics, and home goods.

The investment paid off: Six of Target’s private-labels each do more than a billion dollars in annual sales. These labels, together with other brands sold exclusively at Target,  contribute nearly a third of the company’s overall revenue (and an even greater percentage of profits).

In addition, Target has worked hard to fill gaps left by unsuccessful competitors. For example, when stores like Toys “R” Us and the Sports Authority went bankrupt, Target saw this as opportunity: market share begging to be gobbled up.

Yes, Target has definitely gotten its groove back. It did so by bucking analysts’ advice, and instead returning to basics:

Thinking long-term. Leveraging strengths. Filling gaps.

I guess Target got the last laugh after all.

By: Justin Bariso Author, EQ Applied

Source: Amazon Almost Killed Target. Then, Target Did the Impossible

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