The last four years for Target Corporation (NYSE:TGT) haven’t exactly been stellar. Data breaches, bathroom scandals and a failed attempt to corner Canada’s consumer market have all plagued TGT and Target stock owners. Over these years, TGT stock has been on a move downwards while other retailers have capitalized on its mistakes.
![Target Corporation (TGT) Stock Hits the Bull's-Eye With This Move](https://investorplace.com/wp-content/plugins/lazy-load/images/1x1.trans.gif)
But you wouldn’t know it, by how Target stock has performed over the last few months.
TGT stock is going gangbusters. Better earnings and cost controls have helped, but the real reason is that Target is going small. Very small. As in small format.
As one of the first retailers to use the big store and super-center model, TGT is now looking towards shrinking its footprint and opening stores in key urban markets. These smaller flexible stores are going to be the key to its long-term success.
TGT Stock: Stores Shrinking Down
Target and rival Wal-Mart Stores, Inc. (NYSE:WMT) have long been staples of suburbia. The pair have duked it out with their huge stores and parking lots. But the problem is, that the soccer mom was the consumer of old. And some of Target’s recent business decisions, such as its bathroom policy, have alienated many of these customers. Sales at its traditional stores have been somewhat mixed as these customers have fled.
So what did TGT decide to do? Say “F’ Em!” and move on.
Target has always been the “cooler” of the two discount retailers and it has decided to bring that to the people that still want to shop in its locations — i.e., urban and hip millennial customers. And it’s doing that by moving in high density urban areas with the new flexible store format.
These new flexible format stores are substantially smaller than a standard TGT location around 50,000 square feet. The average Target in suburbia is around 170,000 square feet or more if it’s a Super Target location. The key for the format’s future success comes down to two factors.
TGT Targets Millennials
First, these urban Targets are unique in that they tailored to meet the specific needs of their location. Similar to how each Potbelly Corp (NASDAQ:PBPB) sandwich location is designed for the individual market. Each location will feature a carefully curated assortment of baby products, toys, apparel and other goods custom picked for that city or town. More importantly, the stores will have small groceries and fresh food items designed to be perfect for the mid-week shop. Need a gallon of milk? Walk on down to Target. And while you are there, buy a higher margined t-shirt.
Secondly, the smaller format stores are right were its main growing customer base is.
While the connotation is that Millennials are all lazy, special snowflakes that sleep in parent’s basements and flip burgers. The truth is the bulk of us have it pretty together. More importantly from a retail point of view, we are actually better off then both the Baby Boomers and Generation X in terms of wealth creation/incomes when comparing them to the same point in their lives. And Target knows this.
When it comes to where we live, it’s increasing urban areas and cities. And that lends itself to smaller format stores. There simply isn’t the space to open up a massive 200,000 foot location in downtown Boston or Tribeca.
Target is also going after millennial consumers while they are still in school. TGT has expanded the format to help fill the shopping gaps near college campuses. These smaller stores, such as one at the University of Texas, Austin and Penn State, are within walking distance from dorms and apartments.
A Big Win For Target Stock
Walmart tried an urban concept back a few years ago with its Neighborhood Markets and Walmart Express stores. However, the venture failed and WMT closed nearly 275 of the locations. The reason was demographics. Millennials and hip urban shoppers simply don’t shop at Walmart. The last time I was in a Wally World was literally eight years ago. I guarantee I’m not alone in that regard. But Target does tap into this generation’s needs and wants.
In the end, the smaller format urban stores will be a monster hit for TGT stock. It places the right retail company in the hands of the right customers. While the concept and stores are just starting to be built, Target seems to have plenty of success in driving sales and traffic to these new locations.
That in turn will drive revenues and profits down the road for TGT stock as the company rolls out more of these stores.
Your local suburban Target store isn’t going to close any time soon, but the future of Target stock is increasingly becoming city based and that is great news for long-suffering shareholders.
As of this writing, Aaron Levitt was long TGT Stock.