How Target Corp. Is Strategizing To Turn Around Its Fortune

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Sep 29, 2014

Retail giant Target Corporation (TGT, Financial) has been struggling for quite some time to keep pace with the changing tastes and preferences of the consumers. The company is desperately working to formulate some strategy to counter the growing preferences for online shopping and the threat that smaller formats are posing. The fact that the company is unable to stock its shelves sufficiently and failing to meet customer expectation is no hidden statistic.

The misery with the big box retailer

Target is reeling from weak sales in the domestic market where customers are either preferring online shopping, or visiting small dollar and neighborhood stores to save on some cents. Sensing the shifting trend the company has twice trimmed its annual forecast. Canada is also showing disappointing results. An analyst from Credit Suisse says that the retailer should shut down its facilities in Canada to cut its losses. Under these circumstances, how is Target planning to make strategies to turn around things?

Consumers are becoming price sensitive and going to dollar stores rather than going to the big box retailer. Also online shopping has made purchasing comfortably easier and cheaper as well. So what are the areas that Target needs to work on?

Setting strategies to get things right

Understanding the need of the changing times, Target has decided to increase its concentration on small format stores to regain its old customers who have started making purchases from dollar stores. Small format stores are eating into Target’s customer base in good number. It is therefore important for the company to make alterations in its operations and focus on establishing its name in the small store space. This is imperative for the giant to stay profitable in the extremely competitive retail market.

Target is now keen on putting money in only those areas that have profitable operations, are performing well and have growth prospects in the future. Instead of allocating resources in hard-to-sell products, it is more meaningful for Target to invest in its signature items.

The company’s management believes that prioritizing all products should not be the way going forward. Target should now get more aggressive in its approach and instead focus on those categories that are its key traffic drivers. The company now knows that it’s essential to upgrade the entire system to enhance customers’ shopping experience so that they re-visit and become loyal. This is important to survive while competition is getting fierce. Thus Target needs to get into those store types that draw more customers. In addition, the company is investing to bring infant and children related products apart from having fashion, furniture, wellness as some of the product categories in its store shelves. Having said this, Target may be reducing its focus on some products but has no plans of shelving it completely. The idea is to pull more resources into its core products and get back the kind of traffic it had pulled earlier.

A difficult phase

Target agrees that items of daily consumption are huge crowd pullers while products related to fashion are currently taking the back seat. The cyber attack that the company saw last year has disillusioned a big chunk of its customers who have since then gone to either other big box retailers such as Walmart (WMT, Financial) or nearby dollar stores. Target wants these customers to gradually come back to its stores.

There is no doubt that the transition is going to be a challenging process for the company. It has to bring the entire supply chain in sync to get the kind of effectiveness and efficiency it needs to turn around things. Fellow player Walmart is also investing in small stores, which mean Target isn’t alone, the entire retail market is evolving to tap consumers.

Parting thoughts

Target is under a lot of pressure to pull up its top and bottom lines. The current headwinds are like eye openers for the company to get into the aggressive mode and make strategies that would help the company recover from the present slump. Target investors should stay a little patient instead of losing hope to see how its plans take shape in improving the current situation.