Target CEO on Making Bricks-and-Mortar Stores Work Harder

By Scott Kirsner |  January 15, 2019

Target CEO Brian Cornell sounded doggedly optimistic during a talk at the National Retail Federation’s annual trade show in New York on Monday.

Despite the gloomy clouds of the Sears bankruptcy and the relentless march of Amazon, Cornell said Target is staying in tune with the millennial consumer; introducing new store brand products rather than trying to grow existing ones; making sure that real-world shopping feels fun and not like a chore; and getting brick-and-mortar stores to work harder, serving as fulfillment and service centers for goods purchased online.

Target Chairman and CEO Brian Cornell

“Consumers still love to shop great stores,” Cornell said during a keynote address. “We’ve been aggressively investing in reimagining our physical stores, and making them work even harder. We consider our stores our single biggest competitive advantage.”

Below are edited highlights from Cornell’s speech, and an onstage Q&A session that followed with NRF CEO Matthew Shay.

Go back ten years. What’s changed? The short answer is: everything. Go back to 2009. The millennial was a big mystery. iPhones were just being introduced – and I can tell you nobody ever shopped from their BlackBerry. In 2009, for companies like ours, digital was still a rounding error, not a growth engine. …

Our world is in a perpetual state of change. … In my mind, there are really four keys to success in future retail:

  1. You must always start with the consumer, in every decision that you make.
  2. You have to be willing to invest in both the present business — and for tomorrow.
  3. You have to be willing to reinvest in stores, digital, technology, fulfillment, and in your teams.
  4. You must be willing to disrupt yourself.

Finding New Potential in Stores

[Ten years ago,] there were questions about the future of physical retail stores. And there were questions about Target’s place in retail. … We quickly realized we were never going to win if we played someone else’s game. We were still running as a separate business — different buyers, different inventories — and a half-dozen fulfillment centers around the country trying to serve the entire US. But as digital moved from a rounding error to an essential part of the consumer expectation, we knew we couldn’t build distribution centers fast enough to go head-to-head with Amazon. But it was clear we already had a coast-to-coast network, with more than 1,800 potential distribution points — but until that moment, we only thought about them as stores.

Turns out, they had a lot more potential. We’ve been aggressively investing in reimagining our physical stores, and making them work even harder. We consider our stores our single biggest competitive advantage. They function as service centers, fulfillment hubs, and they’re incredible showrooms for inspiration.

This season, our digital business outperformed the industry by over 50 percent. And that’s largely because three out of every four digital orders was fulfilled by a store.

Consumer still love to shop great stores.

Launching New Store Brands with Different Appeal

For years, we took enormous pride in assembling a portfolio of home-grown billion-dollar brands, but somewhere along the way, our private label business started to sputter. We were…trying to grow the size of our brands, versus meeting the needs of the consumer and growing market share. We realized the real opportunity was…to develop new brands that appeal to different guests. So we’ve introduced four new brands [for our home design products, and now we’re seeing consistent market share growth. … During the last two years, we have introduced 20 new brands [overall], and we are growing market share in every one of our major categories.

Consumers care about great value, quality, design, newness — and that surprise we try to offer each and every day.

Exploring Emerging Technologies

At Target, we’re spending a lot of time exploring everything from AI to VR, but we’re also realizing there is still no substitute for that human connection. …Technology is only going to go one way, and that’s fast forward. If you want to stay ahead, you’ve always got to be putting the consumer in the middle of every decision you make. …It’s not easy, but I think it’s essential.

It’s hard not to get distracted by those shiny objects. We spent a lot of time as a team talking to consumers, talking to our guests, and trying to understand what they were looking for in their shopping experience. The changes we’ve made have been led by the consumer.

Reading Today’s Tea Leaves

Indications are this was one of the best holiday seasons in five or six years. The macro environment has helped us.

We spend a lot of time looking at traffic growth, and are we driving more footsteps into our stores and visits to our site? Is that leading to higher sales and market share growth? Those are the proof points that we’ve got to make sure we’re really focused on. …It’s really the consumer voting with their wallets, and saying, “We like what you’re doing, and rewarding you with more traffic and higher sales.”

What are we seeing with consumers:

  • It’s still a very strong GDP environment
  • Unemployment rates are historically low
  • Wages are rising by 2.5 to 3 percent
  • Consumer confidence is still quite high
  • For the average consumer, gas prices have continued to decline
  • They’re at work, they’re seeing higher wages…

This is still a healthy retail environment. Will that continue forever? Probably not. But I still like that two percent environment. There’s still growth, and market share opportunities that we want to capture.

‘Both/And,’ Not ‘Either/Or’

For many consumers, shopping starts with that smartphone device. Eighty-five to 90 percent of all retail sales will take place in a physical store, even in 2019. Digital enables many of those trips…[like] consumers taking advantage of the convenience of placing an order on their smartphone, and later that day, picking it up in a local store.

A few years back, the conversation [with industry analysts] was, ‘Is everything going to move to digital?’ Now, it’s not an either/or conversation. It’s both. For the retailers of tomorrow, they’re going to have to find a great digital and physical experience… Many of those pioneer digital retailers, their form of innovation has been opening up stores. It’s not an either/or — it’s an ‘and’ environment. We’re focusing on bringing the best of our brand to our physical and digital experience, and just make it easy and convenient for our guests to interact with the brand anywhere they want.

Consumers still love the social interaction [of shopping in a brick-and-mortar store]. They love being out there with their friends. As we build brands, design our stores, as we continue to enhance our digital offerings, today’s consumer still says, “We love a great store experience.”