Target Corporation (TGT) is a big player in retail, but it’s often overlooked by the likes of Amazon.com (AMZN) and Wal-Mart (WMT).
Target’s trying to change that, though, and if the early results of its turnaround are any indication, the strategy is working.
Investors aren’t complaining, that’s for sure: While TGT stock can’t compete with the one-year returns of an Amazon.com (+105%), TGT shares have rallied 22% in the last 12 months, far better than returns on the S&P 500 (+4%), Walmart (-24%) and Sears (SHLD), which is down 33% over that time.
The Strategy at Work
About 15 months ago, Target named Brian Cornell the CEO and chairman, and he went to work trying to bring the brand back to life. You know when people intentionally mispronounce Target “Tar-jeyh”… that’s the aura he wanted to re-inspire.
Since taking the helm on July 31, 2014, TGT has beaten earnings every quarter under Cornell’s watch.
And while Target’s investment in e-commerce and digital initiatives is no secret, a crucial reason TGT stock has been on the up-and-up is because of an emphasis on multichannel distribution networks. Customers can choose to buy products online, in-store and, increasingly, buy online and then pick their purchase up at a pickup facility.
E-commerce is important, and Cornell realizes that. Digital sales were up 30% in the second quarter, and Cornell wants to see more.
But physical stores are still TGT’s bread and butter. And that’s where the real difference is being made.
Optimizing Brick-And-Mortar
“Our big advantage is the fact that we actually have stores. We’ve got 1,805 stores across the country. Consumers in the United States still like to experience physical stores,” said Cornell in a recent Bloomberg interview.
While that may not sound like a revelation that could meaningfully move TGT stock, the numbers beg to differ. Cornell realized that to catalyze sales and increase traffic, the in-store experience had to change.
That meant less boring racks and more showcasing. TGT added mannequins to show customers outfits that pictures just weren’t doing justice. Mannequin-worn clothing sales jumped 30%, and are now in 1,400 stores.
TGT is also increasing its emphasis on housewares, as perhaps a department store like Sears would do, using vignettes to more closely mimic the type of setting you’d find the items in for an average household.
Although that initiative has only been soft launched, the early results are quite impressive: Items merchandised in that fashion are selling three to four times as well as average products in the home category, according to a recent report by Fortune.
TGT stock is beginning to look like one of the more attractive plays in traditional retail once more. With a forward P/E below 15 and a 3.1% dividend, it’s conservatively priced.
And while the company won’t report earnings until Nov. 18, if Cornell’s as good as it seems he is, we may be in for another beat.
As of this writing, John Divine was long AMZN stock. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
