Delivering Customer Value — Brian Cornell, CEO Target
Systems Leadership — April 18, 2019
Target should not be doing as well as it is.
Conventional wisdom tell us that retail is dead. Conventional wisdom says that Target is undifferentiated. Conventional wisdom screams that Target competes with Amazon, Walmart, direct-to-consumer brands and can’t respond to the changing tastes of younger generations.
Conventional wisdom shouts that it is inconceivable that Target just delivered its best financial performance in a decade and has a stock price that is dancing around its all-time high.
Conventional wisdom appears to be wrong.
In our fifth session of Systems Leadership Brian Cornell, CEO of Target, came to Stanford to discuss how the company’s focus on redefining the customer experience has been essential to its survival and growth. By investing in what their customers’ desire the team at Target is leveraging the company’s assets and legacy as a power for competitive advantage and not as a boat anchor. And Target is drafting a new playbook for those who have been reshaping the retail landscape — by making investments in data to create better store experiences, through aggressive investments in new products and designs, and by leveraging the fact that 85% of retail purchases in the United States are still done in physical stores.
Create Change While Riding the Change
Target’s historic footprint has been mostly in suburban neighborhoods with large footprint stores. The company often “catches” consumers at key phases in their lives — starting college, moving into a few apartment, beginning a family — by offering a wide variety of goods which range from clothes to baby needs to household goods.
Indeed, in the last several years, the company has broadened its offerings by adding groceries, adult beverages, an increased selections of toys and other products that are staples to young families. However, the company has also made other changes such as reinventing its owned-brand portfolio and including more than two dozen new brands, a quarter of which are generating more than $1 billion in annual sales. Target is also leveraging its retail stores to create showrooms for rising direct-to-consumer brands such as Harry’s, Casper and Quip.
In addition, the company has added a wide variety of smaller footprint stores in lucrative urban markets like New York and Los Angeles as well as college campuses. These stores cater to a younger generation of millennials that are a different demographic than the young suburban families that have been the company’s core customer base. These stores not only broaden the company’s customer demographics, but have been hugely successful in delivering sales that can be as much as 4X greater per square foot than Target’s traditional larger stores.
Additionally, the company’s acquisitions of Grand Junction and Shipt have enabled the firm to offer the same-day delivery services that are now required to compete given the demands of today’s retail shoppers. These acquisitions, and other investments in data science and analytics (see below), have also brought in new talent and skillsets that have complemented the historical strengths of this Midwestern icon.
Invest or Die
Given the astronomical changes that are confronting global retail, Cornell and his team have realized that in order to stay competitive with formidable competitors such as Amazon and Walmart, investing in the business is a necessary requirement for a company such as Target to survive. Going back to 2015 when the company created its EDABI group(Enterprise Data, Analytics and Business Intelligence) to greatly expand its global data science and data engineering teams, and then again in 2017 when the company announced that it would invest $7 billion in stores, personnel and training, including a commitment to raise its starting wage to $15 an hour by 2020. Target is aggressively fighting to take its place in the consolidating world of physical retail.
Cornell shared that at times of disruption such as now is the exact opportunity for his company to play offense as market share is up for grabs. With the bankruptcies of retail American icons such as Toys ‘R Us and Sears, and the highly visible struggles of other iconic retail brands such as JC Penney, physical retail in the United States is quickly bifurcating into a world of “haves” and “have nots.” The team at Target has taken the approach that if they are to survive (and thrive) they must invest and spend money to be sure that they are one of the companies left standing at the end of this transformation.
As Cornell talked I was reminded of one of Andy Grove’s most common sayings inside of Intel during the 1990s: “You can’t save your way out of a recession.”
Be a Good Listener and Own Your Narrative
After we taught the Target case, Cornell came to the front of the room and shared his perspectives on our discussion. Clearly, he knew the points he wanted to make (as do all CEOs who achieve his level of accomplishment — they are well versed in the details of their business).
But, what was particularly striking was how many questions he kept asking the students about their shopping behaviors, career goals, thoughts on various trends, etc. Over dinner he continued to share his perspectives on his career, his learnings personal and professional learnings, etc., yet, it appeared that he asked as many (or more) questions as were directed towards him. It was clear that Cornell was incorporating data, perspectives and points of view to see how it aligned (or didn’t) with his world view.
Every interaction was a focus group — a chance to learn from customers and potential customers. Cornell was managing at intersections — listening and communicating at the same time — a key attribute of Systems Leaders.
