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Could This Massive Retailer Still Have Lots of Room to Grow?

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Despite its size, this big-box retailer could have some untapped growth opportunities.

Target (TGT 3.34%) is one of the largest retailers in the United States, but don't think for a second that it can't still grow significantly from its current size. In this Fool Live video clip, recorded on Dec. 13, contributors Danny Vena and Jason Hall talk about the different ways Target could take its business to the next level in the coming years. 

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Danny Vena: I think Target is another one of those companies that when you create a list of the retailers who pivoted and were able to embrace what was happening during the pandemic, I think Target has to be on that list. Target was already doing remarkably well just as a retailer. They were able to lower their prices, but not as low as Walmart (WMT 1.22%), so that they could have higher margins. They were able to bring in designers for some of their clothing lines that kept things fresh and kept people going back in there.

I think the big thing that we have seen from Target over the last couple of years is the fact that Target was able to embrace not only in-store shopping, but they've grown their e-commerce. They absolutely were able to embrace the omnichannel and order online and pickup in-store. Created specific parking spaces for folks to come in, park there, hit a button on the app, and say, "OK, I'm here, bring me my stuff." I think that because people are back out shopping again, I think Target is going to do well.

Again, this is a case where it's kind of hard to see Walmart growing much larger than what it is, but I think Target has a bigger opportunity to take share from Walmart a little bit as people step up a little bit from the discount discounter and only step up to the discounter, which is Target.

Jason Hall: I think the real key to Target's success with e-commerce and omnichannel during the coronavirus crisis is what they did the decade before. They really have been focused on having strong e-commerce business for a long time, and that allowed them to adapt that quickly to a few little things that made it even more powerful. Maybe you could call it a fancy Walmart, or a more expensive Walmart.

Because they do target a little bit higher upscale with that in mind, like the Ulta Beauty (ULTA 1.73%) stores in Target, I think there is a margin opportunity and a traffic opportunity there for doing more of that thing to some extent. It can't become a complete department store full of all these. But there are some opportunities I just, like with RH (RH 2.49%), I really struggle with where this company is valued right now. As much as it's growing high-margin parts of its business, it's still, I think, trades for just an extremely high valuation, and that's why of these 10 stocks [10 holiday shopping stocks] I rated at No. 9. If we think about returns over the next 5 to 10 years, there's just a really high expectation that I think is going to be hard for retailers this big to deliver on.

Danny Vena has no position in any of the stocks mentioned. Jason Hall has no position in any of the stocks mentioned. Matthew Frankel, CFP® has no position in any of the stocks mentioned. The Motley Fool owns and recommends Ulta Beauty. The Motley Fool recommends RH. The Motley Fool has a disclosure policy.

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