Hardware Retailing

MAY 2017

Hardware Retailing magazine is the pre-eminent how-to management magazine for small business owners and managers in the home improvement retailing industry.

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HARDWARE RETAILING | May 2017 96 Expert Perspective: Target's Future 360 Hardware Retailing (HR): Target says about 57 percent of its customer base have college degrees and the median income is around $64,000. Why do you think the Target brand resonates so well with these consumers? Brian Yarbrough (BY): Target has cleaner stores, nicer stores. But the thing that really drives that is housewares, apparel, kids and baby. They know their customers well. For a few years, they were lost before Brian Cornell came in. They were trying to push food, which became stale, and they lost cheap, fast fashion, which they've done a good job with recently. HR: How can Target make its small-format stores successful? BY: I'm not 100 percent convinced they will be. When Walmart first opened small-format stores, they got to about 100 locations and it got more difficult. Target has some good ideas with college towns, and entering into urban markets makes sense, but I don't know from a distribution standpoint. You're used to having a full truck to fill a regular Target store, but the express stores are much smaller. Six or seven small stores equal one traditional store. HR: What are Target's growth opportunities and what obstacles exist? BY: Honestly, I don't know that there's a lot of opportunity for growth. They're pretty saturated. I think they're going to have to close stores. The bigger issue is, how do you keep your current market share? They need to fix their current box before they think about growing, and online competition will make it difficult. It's not the same profit margins, so how does Target keep its margins from serially declining? Where they can capture some market share is in their niche offerings. HR: What are Target's strengths in home improvement, sporting goods, home decor and automotive products? BY: Home decor has been a great category for them because it's fashionable stuff that's cheaper and looks like a Pottery Barn knockoff. It's probably their strongest category overall. They've done a great job with reasonable pricing and good quality that fits current trends. Sporting goods, auto and home improvement haven't expanded because they're not really known for those categories. Target is not a destination for those items. HR: What challenges does Target have when competing against Amazon, Walmart and other similar retailers? BY: I just don't think they can compete on pricing. There isn't really any other sizable online retailer that matters more than Amazon, and Target is doing a solid job of being an omnichannel retailer. When you look at price, they're more expensive. But being brick and mortar allows them to offer options like buy online, pick up in store and returns of online purchases in the store. To really compete, Target needs to drive people into its stores by differentiating and focusing on housewares and apparel with exclusive and private-label products. HR: What effect did closing Target Canada have on the company? BY: Financially, leaving Canada was a positive thing for Target because it was bleeding money. As far as public perception, there were a lot of people who were really angry in Canada. The stores and the supply chain were a disaster. The entire expansion damaged their brand up there. They tried to do too much, too fast. Their biggest mistake was training Canadian employees on one inventory system, and then it was a different system once they opened. They said they were fixing it, and they claimed it was fixed, but it wasn't. Consumers continually came in the stores and found empty shelves. You'll never get them back. I think the Target board would hesitate about going international because of what happened there in Canada. HR: What are Target's biggest weaknesses? BY: Grocery has really held them back. Fresh food is a totally different model than boxed and dry food, and Target never mastered that. They're between a rock and a hard place in the food business because there is so much competition from grocery stores and other retailers. Brian Yarbrough Senior Analyst for Equity Research Edward Jones Yarbrough has studied Target for years. Yarbrough has been quoted by Forbes, Bloomberg, the Associated Press and many other global news sources.

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