Target has been fighting two wars recently. One against on-line giant Amazon, and another against brick and mortar gorilla, Walmart.
And it’s winning.
“Target has every reason to be failing right now,” says equity analyst John Zolidis. “The company is up against a trend away from shopping in stores. Its largest competitors are spending aggressively to take share. The weather is always bad. Yet, Target is reporting comps that exceed those of most other retailers. The company is reporting a positive inflection in margins. It is beating analyst estimates and its outlook appears secure.”
That’s music in the hears of Wall Street Bulls who have sent Target’s shares higher, ahead of Amazon’s and Walmart’s YTD.
How did Target do it? With a three-step strategy, which aligns the company’s capabilities and resources with its corporate goals in the new retail landscape.
First, it’s positioning. Target has narrowed its market focus to its core customers— young families, according to Zolidis. “Target is not trying to be all things to all people,” he says. Like Walmart, that is, which has expanded the scope its product offerings to match Amazon.
“Rather, TGT is focusing in on its core customers, which are young families,” he continues. “Target’s strategy is to offer an assortment that is tailored to this group’s needs, at low price, and differentiated and augmented by a broad selection of private label goods, especially in the discretionary apparel and home categories.”
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Source: Finance.yahoo.com 5/30/2019
Second, it’s investing in technology and store improvements to raise capabilities to provide better services. “Target is benefiting from its $550-million acquisition of a grocery delivery startup Shipt Inc. in 2017,” says Haris Anwar, Senior Analyst at global financial markets platform Investing.com. “The retailer is now offering consumers the option to order online and pick up in store.”
Then there’s the streamline of its brick and mortar operations, and store remodeling. “When it comes to brick-and-mortar operations, Target is benefiting from an improved supply chain, its efforts to smartly remodel stores and create new brands,” adds Anwar. The retailer has also been quick to grab the customers of some big brands that failed to survive in this cut-throat environment, such as Toys “R” Us.”
Third, it’s innovation — Target has launched new product lines. “Target has also been successful in making a difference when it comes fashion,” adds Anwar. “It has launched new brands for intimates, sleepwear and household essentials, and plans to add another label for beach and pool products. These initiatives are making the retailer standout when compared to Walmart.”
Zolidis is bullish for Target’s future. “Post 1QFY19, we think Target’s outperformance on the top-line is harder to ignore,” he says. “Meanwhile, margins are inflecting positively, reflecting the company’s multiple years of investments and positioning. While tariff and macro risk remain, we find it easy to argue that Target is doing really well.”
As for the company’s shares, he thinks they are cheap.