We’ve been watching Target in the US over the last couple of months and it’s a great case study in what not to do when you’re not getting growth.
The DL (down-low) on Target’s Performance:
Target have been grinding out around 1-2% growth each year (2.1% comps in 2015, 1.3% comps in 2014). If you take into account US population growth (+0.73%) and CPI (+2.1%) – it’s a ‘flat’ or even negative story.
Let’s fast forward to 2016, Target lowered it’s profit outlook after a pretty poor November and December. They reported a -3% decline during that period – leaving their Q4 comp sales sitting around 1-1.5% (more grinding it out).
So riddle Me This..
In January we heard that Target had decided to axe two of their arguably biggest, long-term innovation projects – their store of the future and online marketplace (see below for more details).
The market – journo’s, investors, and even employees – were left asking how the hell is Target going to be able to grow if they’re not investing in their future?
Target’s answer – ‘we regularly pause to evaluate our business…we recently made some changes to the innovation portfolio to refocus our efforts on supporting our core business, both in stores and online, and delivering against our strategic priorities’…aka we’re happy to continue to complete on price and product – and get another 1% growth.
What innovation projects did they kill?
The first was their store of the future. This was due to be a prototype for a new small format store, according to sources it was part showroom and part warehouse with robots picking items behind the scenes as customers checkout. By the sounds of it, this was an initiative focused at overcoming the rise of pure plays, and creating a more convenient offer for the customer.
Project number two to get the axe was ‘Goldfish’. This was an internal start-up designed to help the business move Target.com from regularly e-comm channel into being an open market place (where other retailers could use them to sell their goods).
We’d have to say that these two projects would probably have helped Target grow it’s actual business, by attracting new customers through greater convenience and depth of offer.
Yet they want to launch Target Pay?
You heard right. Although Apple, Google, Samsung, and Walmart have all launched their own versions of a mobile wallet or ‘Pay’- Target has decided this is where they should invest. Although Apple and Google are arguably better positioned – they have the resource, experience and funding to make it work – Target are developing their own technology (costly and a strange move). To me this sounds like the classic tactic of a follower – risk averse and waiting for someone to do it first and then for some insane reason think that you can do it better.
To quote the very wise Michael Porter: “The granddaddy of all mistakes is competing to be the best, going down the same path as everybody else and thinking that somehow you can achieve better results”.
The definition of insanity…
Target is a great – but definitely not the only – example of a business that’s thinking only of it’s next quarterly result. They aren’t think about questions like ‘How could my business be here for the next 100 years’ (a question that Ikea regularly ask themselves). Target’s risk aversion and short-term focus means they’re going to continue to do the same things (Discount, sales, new product) and expect a different results….pretty sure that’s the definition of insanity.