Target 4Q16 Earnings Call Notes

Brian Cornell

A seismic shift for our industry

“For the past several years, we’ve been watching several key consumer trends emerge. People are placing greater value on experiences. Often they would rather live it than own it, especially young people. When they buy, they want to buy into a greater purpose, not just a product. Taken together, these changes can only be described as a profound shift in the consumer mindset. Then combine that with the different behaviors around how and where consumers are choosing to shop. Today, there is total transparency. Ease and speed are paramount. The shift in channel preference is real and only gaining momentum. Our industry is the midst of a seismic shift, and, of course, you read the headlines.”

Not seen this number of distressed retailers since 2009

“In fact, many of you write the reports, we’re operating in an incredibly challenging environment. All across the retail industry, many of our competitors are aggressively rationalizing their assets. They are closing stores, exiting markets. They’re cutting costs just to keep their heads above water. We’ve not seen this number of distressed retailers since 2009 in the Great Recession. This contraction will create opportunities for Target to pick up market share over the long-term, but aggressive promotional activity will create pressure on our business in the near-term. At the same time, there are others who are thriving in this new environment. So the changes we’re making aims squarely at moving Target into the retail winner circle.”

The essential Target doesn’t translate to the digital world

“that essential base Target run doesn’t completely translate to the new digital world. Traffic drivers are fundamentally different and guests behave differently too. Put a guest in the store, they are looking for inspiration, they enjoy discovery, they enjoy shopping. But very often a visit to, it’s far more transactional. One item at a time, logon, check out, as fast as possible friction free.”

Challenge is to continue to understand consumer evolution

“So the challenge ahead is really about continuing to understand how consumer preference and expectations are evolving. Anticipating where they are going, what they’ll want before they have to tell us. Finding new ways to engage at every stage in every occasion. Offering and clearly communicating compelling value in every interaction at every touch points and building a new Target that’s uniquely positioned to compete and win, delivering on two pillars of market share growth, one digital, and one physical.”

Need to be proud of who we are. This isn’t the first shift in retail

“The third and final piece of our strategy is about standing proud and being confident about who we are, holding up the power and the potential of our brand as a beacon, and leaning into all the reasons guests fell for Target in the first place. So at the start this morning, I talked about how we’re looking at this seismic and accelerating shift in our industry and that’s true. But you know better than anyone that these inflection points come around every generation or so. And strong retailers endure, while others, well, they don’t. Pick your era defining change throughout history from downtown department stores to suburban malls, catalogs, e-commerce. Target not only weathered the storm, we emerged better positioned as a result, and that’s for many reasons.”

2017 is a year of investment

“I’ll go back to my what Cathy talked about a few minutes ago. We certainly view 2017 as a year of investment. In 2018, we’ll continue to transition as these different initiatives begin to mature. As we get into 2019 and beyond, we certainly expect stability and a return to growth. So that’s the model we’re looking at. We can’t laid out for you quarter-by-quarter. We want to make sure, we’re properly investing and accelerating these initiatives. And if there’s a message I want everyone to walk away with today, these aren’t new initiatives. We’ve been working on these for several years.”

We’ve got to invest to grow

” We’ve got to invest to grow. We’ve got to reimagine our stores. We’ve got to enter new neighborhoods as we’re doing with these small formats. We’ve got to transform our supply chain. We have to build out the digital capabilities required in this environment. We have to continue to elevate our proprietary brands. And I think most importantly, we just have to embrace the realities of this new era of retailing and make sure that we also embrace the way consumers are shopping today.”

Data science has become a strength

“Oliver, let’s try to unpack those questions. Let me start with the last one, as we think about the role of data science and analytics. And I made the comment that three years ago this was a nascent capability for us. It’s now quickly become one of the strength of the company. And we’re applying that across all of our various functions. It’s helping Mark and his merchant team make better choices. It’s certainly enabling some of the work that John is leading from a supply chain standpoint. It’s influencing how we lead and manage our stores. And Mike can talk about the important role it plays as we think about digital and the personalization of our communication. So data science is going to play an important role across all of our functions going forward to make the company focused on the right decisions, smarter decisions, more personalized decisions.”

John Mulligan

Stores are our key competitive advantage

“First, let’s talk stores, our key competitive advantage. They are at the center of everything we do for our guests regardless of how we deliver. The 40% digital growth we saw in December, they enabled it. In the two days that followed our record-setting cyber Monday, our stores shipped more than 1 million orders to fulfill that demand. The week before Christmas, our stores fulfilled nearly 70% of our orders. And on Christmas Eve, they fulfilled more than 80%, shipping about half of those to our guests and packing the other half for in-store pickup.”

We’re slow and have too much inventory

“This past year, we hired a lot of talent with deep expertise and set wheels in motion for a major revolution of how we operate. We’ve honed in on two points we have to fix. To put it bluntly, we are slow and we have too much inventory. And I can’t tell you how painful it used to be to say that out loud. But now I’m actually eager to share it, because I’m so confident the work we’re doing will position us to compete on a whole new level. Fundamentally, we’re changing how we move product.”