Key Categories and Trends for Target's Business

Part
01
of five
Part
01

Target's Brand Strategy

The actions that Target is taking to promote its non-target brands focus on partnering with premium brands and trendy designers to tap into the existing customer base of these brands. On the other hand, Target promotes its owned-brands by understanding the needs of its customers and then launching new private label brands that resonate with the demands of its target audience.

Non-Target's Private Label Brands

Target's Private Label Brands

  • Target's strategy for its owned-brands involves understanding the consumer trends and then tailoring the trends to its broad audience.
  • The brand's secret sauce is "borrowing the best elements of department stores and applying them to a discount big box". The goal of the brand is to have unique products that have a strong identity with shoppers which helps to increase stores' visits growth and ultimately sales.
  • Target achieves this objective by launching its private label brands that resonate with the needs and demands of its target audience while retiring old brands that have no consumer appeal. For instance, in August 2019, the brand launched Good & Gather, a new grocery private label brand.
  • The aim of the introduction of the new grocery brand was to meet the demands of consumers who have always resulted in purchasing groceries from other retail stores such as Walmart since Target is perceived to mainly deal with other product lines such as apparel and home ware.
  • Besides, the move was largely influenced by consumers' shifting preference for private label brands as opposed to manufacturer brands
  • Target pushes for sales of its owned-brands primarily through improving its in-store experiences. However, for the newly launched Good & Gather, Target plans to promote the brand through online marketing. This is attributed to the fact that the sale in online grocers by private brands continues to surge.
  • To ensure the sustainability of its owned-brands, Target results to retire brands that do not resonate with the needs of its customers. For instance, after the launch of Good Gather, Target plans on phasing out two food brands including Archer Farms and Simply Balanced.

Research Strategy

To determine the actions taken by Target to promote its brands including non-Target private label brands and Target owned private label brands, we analyzed the different brands of Target to determine how the chain store promotes the brands. We focused on newly launched private label brands by the chain store and analyzed different actions that we being undertaken to promote the brands to increase sales and ensure sustainability.
Part
02
of five
Part
02

Target Trends

Five trends that are affecting Target's business include the growing competition with online retailers, the growing demand for sustainable business practices, the increasing adoption of artificial intelligence, the increasing demand for forward-thinking digital media partners, and the increasing valuation of commercial real estate properties. In response to these trends, Target is opening smaller stores in cities and college campuses, installing solar panels on stores, creating applications enabled by artificial intelligence, rebranding its ad or media platform, and seeking state tax policy changes.

Growing Competition with Online Retailers

  • In the suburbs that big box retailers used to dominate, purchase habits are evolving, and more and more consumers are shopping online.
  • Sales of Target and other mass merchandisers have suffered as a result of this trend. Several retail companies, in fact, have closed stores or have stopped operating altogether.
  • One of the ways Target is responding to this trend is by going small. Target recently announced its plan to open 30 small stores in college campuses and cities such as New York, Los Angeles, and Washington D.C. in 2019, with these stores averaging 40,000 square-feet in size, about a third of the size of the company's traditional store.
  • The reason behind this plan was to capture new customers, in this case, the urban shoppers. According to CEO Brian Cornell, the smaller stores help Target enter new markets where there is not enough space for a full-size store.
  • The plan was announced following the announcements of other mass merchandisers to open small stores or downsize existing stores in an effort to save money and capture new markets.
  • Other ways Target is responding to this trend are by selling online, offering smaller and curated product assortments, positioning several private label products as lifestyle brands, and improving the in-store customer experience.

Growing Demand for Sustainable Business Practices

  • More and more consumers are choosing brands that operate sustainably. Target, in fact, recently found that sustainability is what is most important to its guests. Almost 75% of Target's customers find sustainability very or extremely important.
  • This trend has prompted Target to assess how it can demonstrate its commitment to sustainability.
  • Target and Walmart are responding to this trend is by switching to renewable energy sources. Target recently announced that by November 2019, it will have installed solar panels on 500 of its 1,855 stores. Target pledged as well that by 2030, 100% of its electricity will be sourced from renewable energy sources.

Increasing Adoption of Artificial Intelligence

  • The adoption of available technologies, especially artificial intelligence, continues to be a top trend in retail.
  • As a result of this trend, Target is exploring how it can put artificial intelligence to good use in its operations. Target is responding with a number of initiatives involving artificial intelligence or machine learning.
  • First, for its online store, it is working on a machine learning algorithm that will determine the complementary products that should be advertised or recommended on a product's page.
  • Second, it is strengthening its data science capabilities by acquiring small businesses that specialize in artificial intelligence. Its most recent acquisition, Kvantum, is an expert in applying machine learning to optimize ad budget spending.
  • Third, it is offering Target Beauty Studio, a tool powered by augmented reality and artificial intelligence. Available on mobile and desktop, the tool allows users to virtually try on cosmetics.

Increasing Demand for Forward-Thinking Digital Media Partners

  • In the world of media and internet advertising, the demand for smart, agile, and non-traditional digital media partners is increasing.
  • For big box retailers such as Target and Walmart, this growing demand presents an opportunity for business diversification and growth.
  • To take advantage of this trend and help brands or advertisers engage with shoppers better, Target has expanded its Target Media Network and rebranded it to Roundel.
  • Target also presented for the first time at the recently held Digital Content NewFronts to showcase its ad/media platform and trove of first-party shopper data. It made the presentation with the hope of attracting ad dollars.

Increasing Valuation of Commercial Real Estate Properties

  • Mass merchandisers are seeing increases in the valuation of their commercial real estate properties, and as a result, these mass merchandisers are seeing increases in their property taxes too.
  • Valuation increases of no less than 50% have been observed by Target stores in Johnson County, Kansas, for example.
  • In response to this trend, mass merchandisers, notably Menards, Target, and Walmart, are requesting local government officials to consider changing state tax policies.
  • They are recommending that their properties be valued using the "dark store theory" method, a method where their properties will be appraised for their vacant lease value not their current value. They are arguing that the taxable value should depend solely on "how much the building would lease for on the open market."
  • For these mass merchandisers, how well the store is performing should not be a factor in the appraisal.

Research Strategy

Although the trends impacting Target's business are not readily available in the public domain, we were able to identify them by examining what most big box retailers are currently doing and why these big box retailers are doing these things. After identifying the trends that are driving these big box retailers' actions, we then researched how these particular trends relate to Target specifically.
Part
03
of five
Part
03

Target's Top Brand Categories

The top product categories at Target are apparel and accessories, beauty and household essentials, food & beverage, hardlines, and home furnishings. Below is an overview of the findings.

1. Apparel and Accessories

  • This product category includes men's, women's, and kids' clothing, plus-size clothing, maternity clothing, shoes, bags, accessories, and jewelry.
  • Some exclusive brands include C9 by Champion, DENIZEN® from Levi’s, Genuine Kids from OshKosh, Isabel Maternity by Ingrid & Isabel and Just One You made by carter’s. Some owned brands include A New Day, JoyLab, Art Class, Kona Sol, Sonia Kashuk and Ava & Viv.
  • This product category has a 19.90% share in Target's business. [see calculations below]
  • Target's revenue from this product category is $15 billion.

2. Beauty and Household Essentials

  • This product category includes makeup, haircare, skincare, bath & body, and personal care.
  • Some owned brands include Smartly and up & up.
  • This product category has a 23.51% share in Target's business. [see calculations below]
  • Target's revenue from this product category is $17.72 billion.

3. Food and Beverage

  • This product category includes produce, dairy, meat & seafood, deli, frozen food, beverages, pantry, bakery & bread, coffee, candy, liquor, and chips, snacks & cookies.
  • Some owned brands include Archer Farms, Market Pantry, Sutton & Dodge, Wine Cube, and Simply Balanced.
  • This product category has a 19.34% share in Target's business. [see calculations below]
  • Target's revenue from this product category is $14.58 billion.

4. Hardlines

  • This product category includes electronics and toys.
  • The exclusive brands include Kid Made Modern, Oh Joy! for Target, and Umbro for Target. Some owned brands include Smith & Hawken, Boots & Barkley, Bullseye's Playground, and Pillowfort.
  • This product category has a 16.85% share in Target's business. [see calculations below]
  • Target's revenue from this product category is $12.7 billion.

5. Home Furnishings and Décor

  • This category includes rugs, lamps, bath, bedding, furniture, home appliances, home improvement, and storage and organization products.
  • The exclusive brands include Fieldcrest, Hand Made Modern, Hearth & Hand with Magnolia and Nate Berkus for Target. Some owned brands include Opalhouse, Threshold, and Cloud Island.
  • This product category has an 18.96% share in Target's business. [see calculations below]
  • Target's revenue from this product category is $14.29 billion.

Research Strategy

To identify Target's top product categories and provide an analysis on the topic, we thoroughly relied upon the company's website and annual report. The categories that generated maximum revenue in the fiscal year 2018 were identified as the top 5 product categories and an overview of each product category was garnered from the company's retail website. Information on the brands and revenue generated by each category was found in Target's annual report (2018). Lastly, to identify the product category's share of Target's business, we evaluated the ratio of the product category's revenue to the company's total revenue [see calculations below].

Calculations

Product category's share of Target's business = (Revenue from the category/Target's Total Revenue) x 100%

Target's total revenue = $75.35 billion

Revenue from apparel and accessories = $15 billion
Apparel and accessories' share of Target's business = ($15 billion/$75.35 billion) x 100% = 19.90%

Revenue from beauty and household = $17.72 billion
Beauty and household essentials' share of Target's business = ($17.72 billion/$75.35 billion) x 100% = 23.51%

Revenue from food and beverage = $14.58 billion
Food & beverage's share of Target's business = ($14.58 billion/$75.35 billion) x 100% = 19.34%

Revenue from hardline = $12.7 billion
Hardline's share of Target's business = ($12.7 billion/$75.35 billion) x 100% = 16.85%

Revenue from Home furnishings = $14.29 billion
Home furnishings' share of Target's business = ($14.29 billion/$75.35 billion) x 100% = 18.96%

Part
04
of five
Part
04

Target's Differentiation Strategy

Target's differentiation strategies include the using of its stores as digital hubs, private labels, using media as a differentiation strategy and entering a strategic alliance with Disney in a shop-in-shops strategy. These are some strategies used by Target to set it apart from other competitors in the market.

Using stores as digital hubs

Private label

  • According to My Private Brand, Target's CEO Brian Cornell noted that they have made a commitment of ensuring that they use their own brands as a point of differentiation. He also noted that they bring great style and quality to their visitors at a great value.
  • Mr. Cornell continued by saying that Target will be focused in making sure they manage those brands and building brand management expertise into their teams as they continue looking for white space opportunities and strength in their portfolio with their own great brands.

Use of Media as a Differentiation Strategy.

  • According to Warc, Target is using media business as a differentiation strategy. Target can get information from about 1,900 stores, and from its e-commerce platform and extensive social-media listening, also allows for adjusting campaigns quickly.

Shop-in-shops strategy

Part
05
of five
Part
05

Target's Customer Segmentation

The vast majority of Target's consumer base are women, a large percentage of which are also mothers. Aside from this, Target does not appear outrightly segment their consumers, as there is no mention of this in any of the company's official reports. As such, Target's customer experience strategy is largely geared towards the wants and needs of women and mothers. This includes the marketing and social media content Target publishes, store design, and available services. For example, Target stores now provide private nursing rooms and also encourage women to feel free to nurse anyplace in the store they please. Half of Target's store managers are female and they are responsible for customer experience and design. Overall, a key aspect of Target's general customer strategy is to provide personalized customer experiences. They are looking to level up their customer service by supplying department-specific experts in-store, which might be a way to compete with more upscale department stores, such as Macy's, as Target's consumer base also skews towards the upper-income levels.

Target's Customer Segmentation

  • According to Target's most recent 10-K filing, it appears that the company may not outrightly segment itself nor its customers. First, the company notes in their 10-K that they do not divide their company into multiple segments: "We operate as a single segment designed to enable guests to purchase products seamlessly in stores or through our digital channels." Second, their 10-K filing makes no mention of customer segmentation, despite the fact that other companies often disclose this information in their 10-K and despite the fact that Target goes into a lot of detail about their customer strategy overall in their 10-K form.
  • There is also no mention of customer segmentation in the company's most recent annual report.
  • According to Hitesh Bhasin, founder of Marketing91, 80% of Target customers are female, and 43% are mothers. On average, Target customers are 41-years-old and have an income of $58,000. Bhasin also notes the company's major core consumers are upmarket families and young singles.
  • Bartleby Research corroborates Bhasin's sentiments regarding Target's core consumer base, noting that the company's customers are mostly women, and tend to be "mothers shopping for their children." They also note that Target's consumers tend to be in the upper-income classes.
  • Target's CEO notes that the vast majority of retail consumers are women.

Target's Customer Strategy

  • In the company's 10-K form, the company acknowledges the importance of having a good reputation among their customers is the key to their success. The form notes that the company has long been aiming to differentiate their customer's experience "through a careful combination of price, merchandise assortment, store environment, convenience, guest service, loyalty programs, and marking efforts."
  • In addition to this, the 10-K form states that the company aims to create personalized guest experiences. One way in which Target has been working towards this recently was through the launch of their brand new loyalty program, Target Circle.
  • Target CMO, Rick Gomez stated that the Target Circle program was created by working "directly with guests... the program includes the benefits and perks they told us were most important to them." The program includes a range of personalized incentives, such as personalized deals, voting on Target's CSR initiatives, and getting special perks on their birthday.
  • Target uses the #momsrock hashtag in support of mothers.
  • The company has posted announcements in their restrooms encouraging mothers to nurse their babies wherever they want in the stores while shopping. In this same announcement, they also encourage mothers to feel free to ask a fitting room attendant for access to the store's Nursing Room. The Nursing Room also features "free goodies," according to the announcement.
  • Some Target locations have baby-registry advisers.
  • In recent years, Target has been working to provide a more personalized in-store experience by investing in customer services. Target CEO, Bill Smith notes, "We're investing a lot in hours, staffing, training and development, and creating experts within our stores. Because we know as we listen to our guests in certain categories, they want someone there who is an expert." The Motley Fool notes that this is a tried and true approach that higher-end department stores such as Macy's have long been using (i.e. department-specific experts).
  • According to Jeffrey Halter of YWomen, everything about Target's stores is "geared towards a chic and savvy shopping experience for its female customers." From collaborating with well-known designers, such as Lilly Pulitzer (which sold out from Target's racks within seconds), to the design of the store's shelving, which Halter notes are set at a "mom-friendly height."
  • Half of Target store managers are women. They are responsible for the guest experience and store design. Target CEO Brian Cornell explained why the company feels it's important to have strong female leadership for their customers to interact with the sentiment that leadership should reflect the customer base; "Seventy-five percent of all retail purchases are made by women. They influence an even bigger percentage."
  • Target publishes a large amount of marketing content that features women and is aimed at women. In fact, that vast majority of their content appears to be targeting this demographic, as shown by their YouTube channel. Likewise, Target's Instagram feed is filled mostly with women- and family-focused content.
Sources
Sources

From Part 04
Quotes
  • "We said we'd invest in differentiation, when others were simply looking for scale. And we said, we'd maintain our balanced multi category assortment, one that’s unique in US retail."
Quotes
  • "Indeed, some analysts at the time expressed surprise that Target would drop the line when it was generating success for the mass merchant, but the move toward private label has proven to be a defining characteristic of Target's differentiation strategy."
Quotes
  • "We’ve made a major commitment to making sure that we use our own brands as a point of differentiation, that we bring great style and quality to our guests at a great value.” Cornell continued, We’ll be focused much more around making sure we’re managing those brands and building brand management expertise into our teams. But we’ll continue to look for whitespace opportunities and the strength in our portfolio with great own brands."
Quotes
  • "As a “fully-fledged media business”, Argyilan reported, Roundel can draw on information from almost 1,900 stores, and from its e-commerce platform, in shaping campaigns."
Quotes
  • "From a strategic standpoint, building out Disney shop-in-shops reinforces Target's differentiation and increases the percentage of products in its stores that cannot price-compared at e-commerce competitors,"