Target just hosted a “Financial Community Meeting” with CEO Brian Cornell and his senior executive team outlining their plan to invest between $4 billion and $5 billion in stores, supply chain and technology to generate $15 billion in sales growth over the next five years. The plan hinges on recovering its “Tarzhay” image that seems to have gone missing.
“Our strategy is all about creating today’s Tarzahy, offering everyday discovery and delight for millions of families and ensuring Target is a consumer favorite for years to come,” Cornell said in a statement.
Tarzhay is the affectionate nickname given to Target that puts an upscale, French twist on the brand and distinguishes it from its more down-home competitors, like the one from Bentonville, AR. But it’s lost something in the translation.
Lagging Behind Walmart
In the vital fourth quarter and the past year, Walmart bested Target at every turn. Walmart U.S. grew net sales by 5%, comparable sales were up 4.6% and operating income rose 7.4% in the fourth quarter. Target dropped 3.1%, with operating income off 21.3%. Its one positive note was comp sales rose 1.5% in the fourth quarter.
On a full year basis, Target net sales declined 0.8% and operating income was down 2.5% with flat 0.1% comp sales. Walmart U.S. boasted 4.7% growth in net sales, 4.5% in comp sales and 7.3% in operating income.
And it’s important to note that Walmart has been making major gains attracting higher-income shoppers. These shoppers with more discretion to spend used to be Target’s bread and butter, but they haven’t been buttering Target’s bread so generously of late.
“Of all the mass market retailers, our data show that Target has lost the highest number of shoppers from stores to other channels such as Amazon,” wrote GlobalData’s retail analyst Neil Saunders on a LinkedIn post.
“Now Target is not a terrible retailer. But its days as the poster child of the retail sector have long since faded,” Saunders added.
Being not terrible is not good enough anymore. Here is the plan to recover Target’s Tarzhay.
More On-Trend Product At Exceptional Value
Innovative, value-focused products with an upscale vibe have been Tarzhay’s calling card and it is going to continue to invest in “newness, quality and relevance” in product. As Cornell said in the presentation, “To make Target a long-term winner in retail, it always starts with product.”
Frequency Means Repeat Business
The company distinguishes between core discretionary categories and what it terms frequency categories that drive repeat business. Food and beverage is the biggest of its frequency categories, being both its biggest moneymaker (23% of its $105 billion merchandise sales) and its second fastest growing since 2019, up nearly 60%.
Its owned Good & Gather brand is on the threshold of being its first $4 billion owned brand and it will kick it up a notch in a collaboration with James Beard Award-winning chef Ann Kim. Launching March 9 in over 1,800 stores, the line will feature a selection of frozen gourmet pizzas and appetizers.
In addition, some 600 new food and beverage items will be introduced across Good & Gather and Favorite Day owned brands, more newness is planned for its cleaning essentials up&up range, which is close to being a $3 billion brand, and its pet-center Boots & Barkley line will get a refresh.
Household essentials, where up&up is classified, is Target’s second largest segment, representing 18% of merchandise sales and its third fastest growing since 2019, up 42%.
Beauty Hits Discretion And Frequency Sweet spot
While beauty is Target’s smallest category, only 13% of merchandise sales, it is the fastest growing, up 76% from 2019 and 6% in 2024, the only category that improved last year. Food and beverage was flat and essentials down 1%.
This past February, it introduced 45 new beauty brands and 2,000 new items with 90% priced under $20. Beauty is a category that encourages trial and discovery and if a product or brand gets a customer hooked, it represents a nice on-going flow of business.
Target-owned beauty brands are not a significant part of the beauty business, where national brands reign supreme. Target’s partnership with Ulta also propels discovery. Currently, Ulta Beauty shop-in-shops operate in about 500 of Target’s 2,000 stores and plans are to expand to 800 by 2027.
Newness To Drive Discretionary Customers
Highly-discretionary home and apparel and accessories categories each account for 16% of Target’s merchandise revenues and hardlines make up 15%. Annual sales in these three categories represent about $50 billion in sales. However, apparel and accessories were flat last year, while hardlines declined 2% and home was off 6%.
To bring more newness, Target will focus on reducing lead times in its home and apparel businesses which typically require the longest development period. It aims to have new products available to consumers within an eight week period.
The home business will get a refresh from new offerings by Hearth & Hand with Magnolia and Threshold lines designed with Studio McGee, a product line approaching $3 billion in revenues. And Target will continue to lean into the activewear fashion business by expanding its All in Motion product line.
New Partnerships
Brand partnerships is another important part of Tarzhay’s appeal. Now Champion sportswear brand and eyewear Warby Parker will join the Tarzhay tribe, taking their place alongside Apple, Disney and Marvel, Levi’s, Kendra Scott in jewelry and Ulta Beauty.
Champion will launch later this year with a 500+ product line featuring the Tarzhay flourish in activewear for men, women and children. Most items will be priced under $40.
And direct-to-consumer darling Warby Parker will start by opening five shop-in-shops in the second half of the year, offering prescription glasses, sunglasses, contacts, eye exams and vision tests. Target already operates 500 Target Optical departments so Warby Parker plans to fill the void in stores without optical services.
Digital Discovery On The Front Foot
Target will continue to invest in the omnichannel shopping experience with more personalization powered by AI to offer product recommendations and optimize search results.
It also will expand its Target Plus marketplace which now hosts 1,500+ partners, including Peloton, Daily Harvest and Honest Baby Clothing. It plans to grow the marketplace from $1 billion in sales in 2024 to more than $5 billion by 2030.
And its in-house Roundel media company serving partners’ ads on Target.com, the Target app and across 150+ publishing partners is slated for growth. In 2024, it generated nearly $650 million in advertising revenue, up 24% from previous year.
Deliver Fast, Reliably And Conveniently
After opening 23 stores last year, Target has its sights set on opening 20+ new stores this year and to add more than 300 stores over the next ten years. Yet three of four Americans already live within 10 miles of a Target store. More store remodels are also planned for this year.
As it leans deeper into omnichannel retail – about one-third of customers use the Target app while in-store – Target will implement a stores-as-hub model to enhance customer delivery options and speed, including same-day delivery services. Digitally-sourced sales accounted for 20% of revenue last year and grew 7.5% in comparable sales. By comparison store-originating comparable sales dropped nearly 2%.
With stores-as-hubs anchoring online delivery, its Target Circle loyalty program is driving more customer engagement. Target added 13 million new Circle members last year, representing just under 20% penetration. It plans to triple its membership base over the next three years and has added a partnership with Marriott Bonvoy for its traveling customers.
New supply chain capabilities enhanced with AI will ensure customers can get what they need and want by any means they choose.
Navigating Tariffs
On the question of tariffs, the company says about half of the goods it sells are made in the U.S. and that it has been actively diversifying its supply chain partners to reduce reliance on places like China from 60% a few years ago to 30% currently. It is on a path to reduce it even further to 25%.
In the presentation Rick Gomez, Target’s chief commercial officer, reassured investors, “Our team has been very proactive and been thinking about this for years now, and have been working to diversify our country of production. We have been moving things out of China to other places around the world. That’s going to give us more flexibility and help us be more agile. The words I’d use are to be dynamic and fluid on tariffs. We’re going to continue to put the consumer first as we navigate through this.”
Elephant In The Room: Reputational Decline
With Cornell, Gomez and all the other presenters mapping their plan to put the Tarzhay back in Target, one question remained unanswered: what is it going to do about the growing chorus of anti-Target voices rising against it?
They started back after Pride Month 2023 when the merchandise selection and displays angered a whole contingent of the American public. Its corporate reputation score plummeted right after, going from an historic high of 76.9 on a 100-point scale in April 2023 to an all-time low of 60.9 points in December that year, according to Stephen Hahn of RepTrak, a data-driven corporate reputation advisory firm.
Its reputation started to recover in 2024, but then Target dialed back its June Pride Month 2024 displays – and in tandem its reputation score plummeted again to 63.9 points.
“Among the general population, LGBTQ issues are polarizing depending on where you’re on the political spectrum,” Hahn explained. “So it can upset some people and make other people happy. Then when you back off supporting the LGBTQ community, it brings a whole new level of dissatisfaction; it disappoints people who were previously happy and makes others confused because you’ve basically flip-flopped on a social issue.”
Target’s reputation recovered faster in 2024 than in 2023, rising to 73.8 points by December 2024, still in the strong range of 70 and above. Then it announced that it was concluding its diversity, equity and inclusion goals, ending its Racial Equity Action and Change (REACH) initiatives, no longer supplying data to diversity-focused surveys, such as HRC’s Corporate Equality Index and ”evolving” its supplier diversity team.
After tilting more toward the right, Target’s reputation score plunged in January, as civil rights leaders called for a boycott of Target during “Black History Month.” Black faith leaders, such as Rev. Jamal Bryant, piled on announcing a 40-day boycott, called a “Target Fast,” to coincide with the season of Lent which starts today, Ash Wednesday.
It also got swept up in the People’s Union USA Feb. 28 Economic Blackout that intended to shut down all consumer purchases from major retailers, like Target.
According to Placer.ai, Target guest visits dropped 11% that day as compared with the average visits on the previous five Fridays. And Similarweb reported a similar decline in website visits, including a 14% drop in its app usage, representing its most loyal customers.
Punished For Flip-Flopping
As in the political arena, consumers don’t like companies flip-flopping on important social issues. “You’re frustrating many of your most loyal customers. Target has always been known for good corporate citizenship,” Hahn reflects. “But evidence of flip-flopping on key social issues related to both LGBTQ and DEI has coincided with reputational decline.
“What does Target need to do?” he hypothetically asks. “It needs to be consistent in what it stands for. If it’s going to take a position, it must be all in and not swayed by politics and the movement of public opinion. Be true to your values. If you’re going to stand for a social issue, stand for it, don’t go into it half-heartedly, then back off.”
Hahn notes Target hasn’t experienced a “precipitous decline” in reputation this year, so it is not yet facing a reputation crisis. But it needs to build up good will again after dropping from a strong reputation to a borderline average one.
“What Target should do based on the data is commit to a position and stay true to its authentic values. All they can do is control what they stand for and be more consistent so its reputation score rebounds.
“But it has to tread carefully. If you’re only half in, sometimes it’s more dangerous than not being in at all when it comes to your support of social issues, especially those that are highly polarizing, like the ones we are talking about here,” he concluded.
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