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3 Things Target's CEO Wants Investors to Know

By Daniel B. Kline – Aug 25, 2019 at 3:02PM

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The retailer continues to perform well by following a somewhat unique path.

Target (TGT -0.23%) has shown that it can compete in the current retail environment. The company has transformed its business to focus on company-owned brands, convenience, and an omnichannel model.

Comparable-store sales rose by 1.5% in the second quarter, while digital sales jumped by 34%. CEO Brian Cornell also noted that "within our core merchandising categories, we saw more than a 5% comp growth in both apparel and essentials," during the chain's Q2 earnings call. "This reflects the broad value we deliver across all of our categories and the balance we achieved between our more discretionary areas like apparel, home and beauty, and our less discretionary, food and beverage, and essential categories, which deliver consistent traffic throughout the year."

It was a solid quarter, and Cornell explained the company's strategy during the call. He also laid out some thoughts on the company's future direction and reflected on some of its bigger successes.

Three Target workers

Target showed an increase in comparable-store and digital sales. Image source: Target.

It's about moments

Cornell and his team have worked to give Target an ever-changing array of merchandise. This has been done by partnering with well-known brands and designers, and offering some surprising product lines.

"Beyond our frequency categories, throughout the year, we focus on important seasonal moments in our guest lives and unique partnerships that create excitement and sustain our brand," he said. "At the beginning of the second quarter, we were really pleased with the guest response to our limited-time partnership with Vineyard Vines, which was one of our most successful in our history. And near the end of the quarter, we saw encouraging early results in our back-to-school and back-to-college categories."

Digital growth

Target's digital growth has been roughly in line with that of chief rival Walmart. That's probably because both companies have been focusing on consumer convenience and offering a variety of delivery and pickup options.

"In our digital channels, we continue to see the most rapid growth in our same-day fulfillment options, in-store pickup, drive up and Shipt, which together have more than doubled their sales in the last year," Cornell said. "These options offer speed, convenience, and reliability. And as a result, they are quickly becoming the preferred fulfillment choices for our guests."

The CEO noted that these options "leverage our store infrastructure, technology, and teams," which shows that the company has figured out how to make its brick-and-mortar presence valuable beyond just selling to walk-in customers.

Fake Prime Day worked

Amazon has set a new summer standard with its July Prime Day sales holiday (which actually took up multiple days in 2019). Target answered with its own sale, which Cornell said was very successful.

"In recent years, many of our competitors have begun promoting Cyber Summer Sales in the July period, which drives consumer interest in online shopping and cause the natural spike in our digital traffic," he said. "This seasonal spike creates a natural opportunity for us to thoughtfully invest in promotions, allowing us to gain mind share and convert this traffic into additional orders and sales. At the same time, the acceleration in order volume allows us to test the agility of our operations in advance of the fourth quarter peak."

The CEO called the company's sales effort "outstanding, both in terms of guest response or promotions as well as the ability of our operations to handle the surge in demand."

An ongoing process

Target completed 84 store remodels in Q2 and plans to finish 300 by the end of the year. Cornell clearly understands that the market is changing and his company needs to continually evolve.

His efforts to do that and give consumers reasons to shop at the chain have so far worked very well. Going forward, the CEO seems to understand that Target must offer consumers both convenience and unique products along with strong value. That's a model the company has been delivering on, and it's reasonable to think it should be able to refine its offerings and continue to improve its efficiency.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Daniel B. Kline has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.

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