The retail apocalypse may be rolling through a mall near you, but not all brick-and-mortar stores are going belly-up.
Target (TGT 0.76%), in fact, has been one of the best performers on the S&P 500 this year with the stock up 71% year to date. The rally for the big-box chain started when the company reported blowout holiday sales in January on the strength of its e-commerce and in-store pickup initiatives. Comparable sales rose 5.7% in November and December as Target wrapped up its best annual comparable sales growth since 2005.
Now, Target looks primed for another strong holiday season thanks to its momentum heading into the key shopping season and several smart strategic initiatives.
In recent weeks, Target has forged two new relationships with major toy brands Disney and Toys R Us. Earlier this month, Target opened 25 Disney stores inside its locations. It also launched an online shop and app that include new and exclusive toys from movies like Star Wars and Frozen.
Disney will open another 40 stores inside Target locations by October 2020, and Target will open its own store near Disney World in 2021, bringing the partnership full circle.
Elsewhere, Target is teaming up with Toys R Us. The toy retailer's newly relaunched website links to Target.com for purchasing. Toys R Us will be opening two experiential stores in Houston and New Jersey that will partner with Target for online ordering and fulfillment. Shoppers will also be able to take advantage of the usual Target benefits like 5% off with a Target RedCard and speedy delivery and in-store pickup.
In teaming up with Disney and Toys R Us, Target is again leveraging its cheap chic reputation. That reputation has led to overwhelmingly popular one-time partnerships with brands like Lilly Pulitzer and Vineyard Vines. The fact that Target is a trusted partner for such a wide range of brands is a sign of the unique space it occupies in the retail industry.
Ironically, Target's recent push into toys came after Toys "R" Us's bankruptcy created an opportunity in the market. Target expanded its floor space devoted to toys, remodeled some stores to have kid-focused toy departments, and hosted events. The company recently gave kids the opportunity to meet characters from the animated series Paw Patrol, for example.
Since then, Target has continued to focus on making toys a bigger part of its business, adding more than 10,000 new and exclusive toys to its lineup and hosting popular events and online features like Top Toy Hub.
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Target got its holiday hiring off to a jump start in September with plans to bring in 130,000 seasonal employees across its stores and supply chains. Getting an early start with holiday hiring helped Target deliver a strong holiday quarter last year, and the company is seeking an additional 10,000 workers this time around, a sign that this year's holiday season should be even bigger than the last.
Target's omnichannel (stores and e-commerce) strength gives it a competitive advantage over many of its retail rivals, and ramping up hiring is a smart move to ensure that stores are fully staffed to take full advantage of the crush of customers that come to stores starting on Black Friday.
Despite concerns about a recession, the economy remains strong with the unemployment rate down and the stock market near all-time highs. Target also showed off improving operating margins in its most recent earnings report, meaning its recent investments in fulfillment and elsewhere appear to be paying off. If that margin expansion keeps up, the fourth quarter could be especially rewarding.
We'll get some insight when Target reports third-quarter earnings and fourth-quarter guidance in a month, but with its new partnerships and momentum going into the holiday season, the retailer looks poised for another strong holiday.