Target and the 'Detail of Retail' - with Justin Abrams and Raymond Riley

Welcome to the Retail Rundown, your go-to weekly podcast where RETHINK Retail teams up with industry experts to discuss the news and trends defining the world of retail.

Is Target aiming to reinvent the mall? Target announced it would be launching Apple mini-shops in 17 of its stores in 2021 with more to come in the near future. Target’s sales also grew by more than $15 billion in 2020, which was greater than the company’s total sales growth over the last 11 years.

So, what can small and mid-size retailers glean from Target’s success? Guests Justin Abrams and Raymond Riley explore this topic and more in today’s episode.

Here is the link to the referenced St. Patrick’s Day T-Shirt with Fanny from Target

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Hosted by Julia Raymond Hare; Written and produced by Gabriella Bock; Edited by Trenton Waller; Social media by Natalie Arana

 

TRANSCRIPTION

Julia Raymond Hare:
Hi everyone, and welcome back to the retail rundown. If you’re new here, we’re going to discuss some of the latest retail news and trends. I’m your host, Julia Raymond Hare, and today we are joined by my guests, Justin Abrams and Raymond Riley.

Julia Raymond Hare:
Justin is the CEO of FlagshipRTL, a brick-and-mortar retail services platform that has launched stores for major powerhouse luxury brands like Moncler, Bogner, and Bonpoint

Julia Raymond Hare:
Ray is the co-CEO of Progress Retail, a retail operations and employee experience platform, providing dynamic learning, task management and company communications. Justin and Ray, thank you both for hopping on the show today.

Raymond Riley:
Thanks so much for having us.

Julia Raymond Hare:
Today we are going to talk about Target. This got a ton of buzz online. I posted about it on LinkedIn and I think it’s one of my most viral posts. There has been a lot of chatter because they recently announced not only that Apple would be in their store, but also their fourth quarter, and full year 2020 earnings report, and it had everyone talking. The big news here is that Target’s sales grew by more than $15 billion USD in 2020, which was, get this, greater than the company’s total sales growth over the last 11 years. So for emphasis, for anyone listening, if you haven’t heard it yet, the growth Target saw in 2020 was greater than total sales growth over the last 11 years.

Julia Raymond Hare:
Another interesting stat that came out of the report revealed that more than 95% of Target’s fourth quarter sales were fulfilled by its stores. That’s a great stat. That’s promising for stores. They’re not going away. Target obviously had a great year and emerged from the pandemic stronger than ever. What’s your take on Target’s come up, what is it about them that they’re getting right, and what can smaller retailers maybe learn from this? I’ll start with you, Justin.

Justin Abrams:
As I was reading about what was happening, it went down the checklist, and they were checking all the boxes. But I think there were three things in particular that Target’s doing really well, that obviously when we look in, we attribute their success to it. The first is that, rising tide flips all boats. If you have brick-and-mortar and e-commerce in a market, your business is almost always stronger. We see that across just about all of the brands that we work with. Then it’s not enough to just have the two channels or three channels, but you need to connect them as much as possible, and ideally provide the most frictionless experience for the customer. They are doing things like in-store shopping, obviously BOPUS e-comm, same-day drive through. I read that their drive-through business was up 400%.

Justin Abrams:
This also provides stronger economics for the retailers. So, if your e-comm only, you might be getting crushed with, 30% returns, which were a huge pain to your cost center as a retailer. So when you have the stores, a local fulfillment center, there are strong, economic benefits to doing so, and obviously it will drive your business. How much more when the customer first has multiple touchpoints to shop from. Then, what I read about where they’re investing in this new $4 billion, it’s on a hyper-local approach. E-commerce by nature is hyper-local because you’re shipping zip code by zip code. If you can take these smaller format stores and merchandise them, specifically to what that local customer wants, you’re going to be so much better off.

Justin Abrams:
A lot of our brands play off an 80/20 rule where they’re stocking in that store. 20% of the merch that 80% of their customers are going to buy on a local level. Actually one of our brands reported a 30% lift in sales when they shifted from maybe a more standard merchandising plan to a hyper-local merchandising plan. So, we see that as highly important in these small-format stores that they’re looking to roll out at college, around college campuses, and the secondary markets, I think you’re going to make them that much stronger.

Julia Raymond Hare:
Great points Justin. Just a quick recap, you said three things are really driving Target’s success and that’s rising tide floats all boats, so you said. I love that phrase.

Justin Abrams:
Or omnichannel.

Julia Raymond Hare:
Omnichannel, right, and then store as the local fulfillment center, which we’ve been talking about a lot. Then the third point, which I really liked is the hyper-local merchandising plan, and you threw out a stat there that it’s investing 4 billion, which is huge. Ray, what would you like to jump in with? Anything to add to those points?

Raymond Riley:
Yeah, sure. From reviewing that press release to quote Vladimir Lenin, there are decades where nothing happens and there are weeks where decades happen. Clearly, Brian Cornell and Target’s take on that is decades of revenue realized and likely 39 weeks of a pandemic, it’s crazy. Target’s got everything going for them. The right real estate, product mix, price for value, and most importantly scale. I live in downtown Chicago and I have a Target on a 10 minute walk from me, in addition to a nice full grocery store at Mariano’s for any Midwest folks around here. That’s about 15 minutes away. I was scanning my credit card history and I personally went to Target from just a transaction basis alone, three times as many times in 2019. it’s such a convenience play.

Raymond Riley:
I think many people, regardless of work from home dynamics, we’re in many ways busier, or at least mentally and emotionally busier than ever before, so that opportunity to save time, consolidate on our shopping, and get in and out remains important to a lot of consumers, and I think that was pretty evident in their Q4 average ticket increasing 13%. From a technology perspective, that was obviously instrumental in enabling that efficient, transactional experience with just like Justin mentioned, their same-day service is growing hundreds of percent on last year.

Raymond Riley:
So, in terms of takeaways for smaller retailers, I think there’s only so much relevant duplicability that can be extracted from a behemoth like Target. 242,000 square feet across 1900 doors. But I actually think that’s the point. Target’s store operations are sharp. I want to give a shout-out to my local division and layer B Target downtown here in Chicago. Every time without fail, whether it’s 9:00 at night, 11:00 AM on a Sunday, I hit that escalator to the top and I’m immediately greeted genuinely by a team member, who sometimes is doing double duty cleaning carts.

Raymond Riley:
There’s always someone there cleaning carts each and every time without fail. So, you’re communicating subconsciously and consciously to consumers walking in that Target can be trusted. I’ve been in many other retail businesses, large format like Target or otherwise, where you don’t see that same level of detail, and that detail of retail, something they’re excelling at, especially if they’re stale. So, I think that means streamline store operations become simply table stakes for modern retail, especially if you’re a smaller operation. Just to that end, the agility of their store operations were probably further tested in Q4 with their digital comp sales growing at 118%, and recognizing like you mentioned Julia, that Target stores fulfilled 95% of that, these guys were busy.

Raymond Riley:
To recap, I guess it’s really about effectively operationalizing and training on these key store operations initiatives, and if it can happen consistently at Target scale, there is little excuse at a smaller scale, and that will be sewn into the fabric of the customer’s expectation.

Julia Raymond Hare:
I love everything you just said, and I also appreciate how you gave a shout-out to your local Target and the operations team there, because over a hundred plus podcasts, I don’t think anyone’s ever done that. So shout out to Target near Raymond. That’s awesome. I love that. To your last point, I think you said something that I would like to weave into the next bit of news with Target we’ll talk about, is the detail of retail is what you said, and it’s the agility of their operations that really does set them apart. Last month they announced that they’re teaming up with Apple. As everyone knows, Apple’s already teamed up with Best Buy in the past, and they’re launching mini-shops inside at least 17 of their stores with plans to roll out more.

Julia Raymond Hare:
The new concept doubles Apple’s footprint, it brings displays for all of their products, iPhone, iPad, Apple Watch, AirPods, and accessories, and it’s supposed to be designed, “designed” for guests to experience new products through demonstration. When you think about everything they’re doing, they’re bringing in mini Apple stores, they’re bringing in Ulta beauty, they’re bringing in Disney, which they’ve already implemented at 50 stores, some people are saying it’s more like a mini-mall. How can we disagree with that? Because it’s not, they’re obviously doing very well.

Justin Abrams:
My thought on that is, first of all, and Apple has maybe 506 stores now where Target has 1800 plus, and they’re going to be investing in so many more. For the brands like Apple and Ulta, it’s drastically more distribution, but it’s also helping Target properly merchandise their stores. If they’re going to be opening on college campuses, that’s tremendous business for Apple that they just would never, ever be able to tap into, at least with a brick and mortar presence, if they were continuing to launch these stores in these more major markets, more flagship type stores.

Justin Abrams:
I think for these brands, it’s just, getting the right product in front of the right customer, and Target’s a hyper-local vehicle to do so. So I don’t necessarily think about it in the mall context, I think about it as Target, as being smart about getting the best and the best products out there, whether it’s their new white label products, or whether it’s some of these more established brands like Apple, and just getting in, in front of the consumers. They’re just an omni-channel vehicle on a zip code by zip code level.

Julia Raymond Hare:
I would say, just to add in, Bob Phibbs, the Retail Doctor, he commented on my LinkedIn post about this, and he was asking, wasn’t Apple saying they were going to redo all the stores with wall-to-wall video screens, and he’s like, there’s a lot to be said for the experience of going into an Apple store versus an Apple store in store in Target. Do you guys agree or does that just come back to convenience? What is it?

Justin Abrams:
Especially for a product like Apple, education is a huge piece. Every time they launch a new product, I’m sure the customer wants to figure out why would I invest in a step-up iPhone or step up Mac, or if this is the device I’m going to be spending all of my waking hours and in college, college student wants to get to touch and try and feel the product, and maybe get up-sold on some accessories. I think it’s more than that. I think for products like that in cosmetics, where you want to try on products and touch and feel what you’re putting on your skin, it’s super important for the customer to have that physical touchpoint, and then continue to purchase on whatever terms are most convenient for them.

Raymond Riley:
Yeah. In terms of it being a win-win, for me it’s difficult to say, I think without question, it’s a win for Apple. They recognize the consumer’s behaviors drastically move towards efficiency and really shopping visit consolidation, and that was obviously reflected in Target’s increases in foot traffic as well as average ticket. I think that playbook is pretty clear. Folks are buying from Target across more categories, and I don’t know if either of you visited an Apple store during the pandemic. I did a few times, and no fault of Apple, but it wasn’t the most enjoyable thing. Waiting in lines, trying to determine the availability of appointments, especially on the repair AppleCare side. That brings me to my next point, and I think that this may have a little bit to do with it.

Raymond Riley:
I had to buy my first Mac and I’ve had Mac since I was two years old with an Apple TCI, so I’m an Apple fein. But I had a machine die two weeks before Christmas, and I had an urgent, you know, we’re all busy. So, I had to go to Best Buy. Again, two weeks prior to Christmas, the store was nearly empty, but naturally curbside was quite busy. It took me a long time to find somebody to help me in the Mac section. I would venture to guess that Apple feels they’re missing that in-store traffic and opportunity from a product exploration discovery standpoint within the BestBuy channel, and Target’s a logical fit.

Julia Raymond Hare:
I could definitely see your points there, and I had a similar experience as well with at least the waiting portion. But you do get to see a lot of the flashy elements of being in the Apple store that makes the experience definitely feel more luxurious. I could see people’s argument there, but you mentioned Ray Best Buy, and I was talking about Best Buy a lot recently with their plans to turn some of their stores into micro fulfillment centers, and then even restructure some of their stores to make the front end smaller, and the back end bigger.

Julia Raymond Hare:
So what do you guys think about Best Buy’s plan to do that? Because some people were saying it’s not a great plan. They should focus on in-store experience versus just being fulfillment centers.

Justin Abrams:
We have a live example of that with a store that we have in Toronto, where actually 10 days after opening or 20 days after opening, it went into complete lockdown. This store is now a fulfillment center for all of Canada, which has been a huge win, a huge win for the retailer. I think there are more ways to use the store. We were doing a lot of virtual appointments, which are driving a huge number of our sales. We have in-store associates reaching out to customers that are purchasing online, to help complete their looks and make sure that there’s a high-touch experience there. I think obviously one, you don’t want to compromise the experience. I think what big box typically did and more format, larger format stores where it was the public display of all the warehousing and products, right?

Justin Abrams:
I think you should focus on small-format experience, obviously use your excess space to make the store as efficient as possible. I can say across the board, when our stores are being used as micro fulfillment centers, the ROI, the P&L was much stronger, way easier to be profitable when you’re that efficient. It just means that you can justify opening more locations and more zip codes. That’s really how we look at it. I don’t think you should ever compromise on experience, but I don’t think you need 10,000 square feet to give an experience.

Raymond Riley:
Yeah, I would totally agree with Justin. I think that the economics have demonstrated it is cheaper to utilize a store, to fulfill a lot of these orders. I also think Best Buy is, they’re meeting customers where they’re at right now, and there is still a healthy segment of the population that is just averse to going into stores. In terms of them being able to rehire, obviously there’s news about a lot of those layoffs, so for them to be able to restructure their workforce and bring these folks back and, re-merchandise or reformat these existing large buildings they have is probably very doable in years to come when hopefully this is far behind us.

Justin Abrams:
Yeah. I think if we were to wave a magic wand, that experience that Ray was sharing about his local Target. I think for the brands that you love and shop from a lot, you should have that neighborhood point of distribution there. It’s a service center again for returns, for curbside, and it’s a place where there’s some experience that either you’re walking past it all the way all the time. So there’s the billboard element of the store. I think for brands to really fit well inside of communities, they have to take this hyper-local approach where again, they can create the most frictionless experience possible, and there’s that experiential element that they can interact with all the time. There’s one, and it was the most simple thing, but Nordstrom local opened the store on Melrose and they were doing the community’s dry cleaning.

Justin Abrams:
There was a place where you could drop off your dry cleaning. People were going there once a week, once every other week, and they were constantly seeing how the stores merchandise, I’m sure they were making purchases. There was a fun little experiential piece of the cafe I believe in there. That’s what I envision as a best-case scenario for so many of the brands that we work with, and I think our retailers overall, is to have that presence in every zip code where it makes sense where you have a customer there and provide that type of experience, efficiency and frictionless, shopping availability.

Julia Raymond Hare:
All great points, Ray and Justin. One of the questions that I don’t know if this is as applicable, but, for small to medium-sized retailers, I think there’s a lot of conversation going around about how do they compete? Do you even call it competing when it comes to seeing the success that Target and Amazon and Walmart are having. What would you guys recommend to midsize retailers?

Justin Abrams:
I think from my side, it’s really easy to stay in e-commerce land, and there are benefits to it. At Flagship, our mission is to help brands AB test physical retail, the way they can AB tests e-com. If there’s a Facebook ad that works well for you, you can run with it, and if it doesn’t, you can cut your losses, and we wanted to create the same experience within physical retail. So I think with a call it a fail fast model, brands don’t need to stay in the digital environment, they can get the win of again, a rising tide floats all boats, the credibility that comes with it, the efficiencies that we chatted about, the more frictionless experience for brands there. I think you just leave a lot of customers, new customers on the table, and you leave a lot of money on the table, quite frankly, when you don’t take this approach, when you just stick to one channel.

Justin Abrams:
I think whether you’re a small or mid-size retailer, if you can find an agile way to scale and test new markets with physical retail, to find your ideal footprint. And for some of the brands we work with, that’s a year-round store in 10 locations and a seasonal presence in 50 locations. But I think when you can test to find your ideal footprint, you’re not leaving those new customers and dollars on the table, and you’re providing all the benefits that we’ve seen Target provide for their customers, and obviously the rewards that come with it.

Raymond Riley:
Yeah. I think to just add to probably what I shared earlier around really the focus on training and operationalizing how your stores run, and if Target can do it pretty well, and, it’s been well-reported. Their investment in training, learning, development, et cetera, for their people. It obviously makes a significant difference. I think that’s now, again, just table stakes for modern retail, with what customers are expecting when they go into stores.

Julia Raymond Hare:
Justin Abrams and Raymond Riley, great points today on the podcast. I wanted to wrap up with a question for both of you. It’s a bit of a guessing game. I’m pulling this from my friend, Chris Ressa. He hosts Retail Retold, and it’s a little bit of trivia. There is something at Target right now. We have St. Patrick’s day coming up soon. It’s a men’s St. Catrick’s day. Like cat, like Meow, with Fanny. It looks like it comes with the Fanny pack. It’s a graphic t-shirt, it has little cat wearing sunglasses on it, and it says Happy St. Catrick’s day. How much do you guys think this is retailing for?

Raymond Riley:
Okay. So just to confirm, it’s a onesie with the Fanny pack?

Julia Raymond Hare:
No, it’s not a onesie. It’s weird. It’s a t-shirt.

Raymond Riley:
A t-shirt.

Julia Raymond Hare:
But it says a t-shirt with Fanny.

Raymond Riley:
Okay. I’m going to go in at $24.99.

Julia Raymond Hare:
All right. Ray’s in at $24.99. What do you guess Justin? No Googling.

Justin Abrams:
I’m definitely sticking with Ray after hearing his Target experiences.

Julia Raymond Hare:
That’s true.

Justin Abrams:
I’m doubling down.

Raymond Riley:
I bought it yesterday.

Julia Raymond Hare:
Oh God. that’s hilarious. No, it’s actually $14.99, which it seems low, right? It seems low, but hey, great prices.

Raymond Riley:
It’s a steal.

Julia Raymond Hare:
It is a steal. We should all go buy one after we hop off.

Justin Abrams:
Can you ship one out to the panelists, is that the deal?

Julia Raymond Hare:
I know, right. As a thank you, I’ll be sending you guys your Catrick’s day with Fanny, absolutely.

Justin Abrams:
Mine’s large.

Julia Raymond Hare:
So Justin, where can listeners get in contact with you if they’re interested in chatting and continuing the conversation?

Justin Abrams:
Anyone can check us out on Instagram at @FlagshipRTL, and our website, www.flagshiprtl.com.

Julia Raymond Hare:
Wonderful, and Ray, what about you?

Raymond Riley:
Yeah. Anybody can find us on Twitter progress for retail, Instagram, progress underscore retail, and then progressretail.com.

Julia Raymond Hare:
Excellent. Justin Abrams and Raymond Riley. Thank you both for joining the rundown today, and I hope to have you back in the future.

Raymond Riley:
Thank you.

Justin Abrams:
Thanks for having us.

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