Target is adding two digitally-native brands, quip and Native, to its in-store offer as it continues to focus on building a unique product range.

Track record of working with digitally-native brands

Target has previously worked with several digitally-native brands to help them develop a presence within its stores. Men’s grooming brand, Harry’s, has been the most prominent of these, with its range of products anchoring its newly-launched men’s beauty zones. It was also the first to feature online mattress company, Casper, within its stores.

Source: Target

Subscription-based service comes in-store

Like Harry’s, quip is a subscription-based service. Target will offer quip’s toothbrush starter kit in its stores, directing shoppers to quip.com to learn about the cost and convenience of a quip subscription. Subscribers are sent a brush head refill every three months. Native is a range of aluminum and paraben-free deodorants. Since launching in 2015, Native has sold more than 1m deodorants through its online platform. As part of the initiative, the range will include an exclusive scent, only available through Target’s stores.

Raising brand awareness of distribution

Partnering with Target provides these brands with an opportunity to significantly raise their awareness and access a much broader customer base. Moving into a mass distribution channel should help to drive volumes and deliver economies of scale for quip and Native. The initiative aligns with Target’s merchandising strategy which is geared to offering exclusive ranges, including private brands and brand partnerships.

By the end of this year, it plans to have completed the introduction of 12 new private brands, impacting around $10bn of volume. Several have successfully launched to date. Investing in private brand is viewed as a key way to drive customer traffic and loyalty, while building important points of difference.

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We review Target’s second quarter performance, which included its strongest comparable sales growth for 13 years.

Comparable stores sales up 4.9%

Target’s second quarter net revenue increased 6.9% to $17.8bn. Comparable sales growth increased 6.5%, its strongest performance in 13 years, with traffic up 6.4%. Comparable store sales were up 4.9%. Operating income increased 3.6% to $1.1bn. This was an outstanding performance from the retailer, with sales growth ahead of the excellent numbers posted by Walmart earlier this month. While the retailer is benefiting from the strong consumer environment, it is also seeing the rewards from the investments it has been making in its stores, pricing, private brands, ecommerce and supply chain. Commenting on the results, president and CEO, Brian Cornell, stated,

"There is no doubt that like others, we're currently benefitting from a very strong consumer environment, perhaps the strongest I've seen in my career.”

Source: IGD Research

Digital channel sales benefit from new fulfilment options

Target’s digital channel sales increased by 41%, with its one-day sale in July having a significant impact. Volumes were three times higher than forecast. Ecommerce has been a major area of focus for the retailer, introducing a range of new fulfilment options over the last year. Same-day delivery via Shipt is currently available in more than 1,110 stores, with the retailer expecting to reach 65% of US households by the holidays. Drive Up is now available at more than 800 stores while Restock has been expanded nationally, reaching 75% of the US population. One of its most successful services is Delivery from store. This has been rolled-out to almost 60 urban stores, and generates the highest basket spend, over $200, of any of its services.

Improving baby and toys to capitalise on Toys R US exit

The retailer has continued to enhance the in-store experience, remaining on-track to remodel 300 stores by the end of the year. These stores continue to generate a sales uplift of 2-4%, in line with its forecast. Target has also invested in its toys and baby departments, improving the offer and in-store experience. The retailer is seeking to capitalise on the closure of the Toys R Us and Babies R Us businesses.

Private brands helping to mitigate margin impact of ecommerce

The retailer also launched several new private brands in the quarter. These include the Made by Design homewares range, its first electronics brand, Heyday, and Wild Fable and Original Use in clothing. These launches, and over 10 other brands that have been launched in the last 18 months, are also an important element in helping it to mitigate the margin impact of a fast-growing digital business.

Improving outlook but cautious on tariffs

The improving performance led the retailer to update its guidance for the year. It expects comparable sales growth to be around 4.8%, in line with the first half. However, the issue of tariffs remains front of mind. It has been expressing its concerns to leaders in Washington and putting contingency plans in place, should the situation escalate further. Target, however, maintains a positive outlook for the year, and expects to continue gaining share in key categories. Commenting on the trading environment, president and CEO, Brian Cornell, stated,

” What you're seeing right now from a macro basis, is well-run retailers with strong balance sheets that generate cash that they can invest back into their business, are winning right now. There are others that can't afford to invest in their store experience or build capabilities or drive differentiation, and they're giving us share.”

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