The retail chain does not have the same budget as its rivals, but it has invested wisely in a way that customers have taken to.
In many ways, Target takes a “Moneyball” approach to competing with Amazon and Walmart, its much larger, much richer rivals.
In that 2003 book, author Michael Lewis laid out how the Oakland A’s general manager, Billy Beane, figured out how to compete with rivals, like the New York Yankees and Los Angeles Dodgers, that had much larger payrolls.
Beane, who was played by Brad Pitt in the movie adaptation, had to use his money more efficiently and find ways to win that did not involve simply buying the best players available.
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The A’s, of course, never actually win a World Series using these tactics, but they remain competitive despite having fewer resources at their disposal.
That’s how Target (TGT) – Get Free Report, with a market capitalization about a fifth of Walmart’s (WMT) – Get Free Report and about a thirteenth of Amazon’s (AMZN) – Get Free Report, has managed to make itself a member of retail’s Big Three.
Target can’t build the massive delivery infrastructure its rivals have, so it made its stores destinations, installed curbside pickup, and bought Shipt to handle same-day delivery. Those are frugal moves that accomplish the same things Walmart and Amazon spent billions on.
Perhaps most important: Target has ensured its access to top brands by creating those brands. That’s a strategy Chief Executive Brain Cornell has made a key pillar of how he runs the company, and he’s going to bet even bigger on it going forward.
Target owns many of the brands it sell.
Image source: BRYAN R. SMITH/AFP via Getty Images
Target Has the Brands Customers Want
Target wants to deliver a mix of quality and reasonable prices to customers. That’s impossible to do if you stock your shelves with name brands that someone else owns.
Instead, the retailer has focused on its mission of delivering “affordable joy” by developing owned and operated brands that are very different from traditional house brands. The chain has done this across a huge group of categories including clothing, food, beauty, home, and personal care.
That strategy has been paying off, according to comments that Chief Growth Officer Christina Hennington made during the chain’s fourth-quarter earnings call.
“Recently, a study listing the 10 fastest-growing private-label brands in 2022 included three found exclusively at Target,” she shared. “Target was the only retailer to have more than one brand on the list, and two of them were the only nonfood brands to make the cut.”
This strategy, she added, enabled Target to differentiate its offerings last year despite the supply-chain woes that have broadly hobbled retail.
“Many retailers were not focused on newness in 2022, but the opposite was true at Target, where we continue to excite our guests with innovative and trendy products,” she added.
“For example, we launched Future Collective, a first-of-its-kind apparel-owned brand, featuring collections in partnership with a rotating roster of diverse influencers.”
Target Is Growing Its Owned Brands
Amazon has struggled with owned-and-operated brands aside from its “Amazon Basics” line of electronics. That’s partly because the company lacks the brick-and-mortar display space to show customers that these brands are equal to bigger names. And it might be partly because its brands aren’t always equal to the name brands they seek to replace.
Walmart has taken a more traditional house-brands approach, where value is the core offering. Target, however, has worked steadily to make its house brands exciting in ways that create value rather than making them feel like a price-based compromise.
Hennington outlined some of the company’s approach to these brands during the call.
“For us, we talk about owned brands rather than private label because these are brands we’ve invested in for years,” she said. “We build them, design them, create the packaging, the marketing materials, and they’re hugely important to our strategy.
“And so, in that sense, we never think about it as trade-down; we think about it as trade-in. It creates more options for people to use and engage with our portfolio because it tends to be the same great quality at incredible price points,” she added.
That’s why Target plans a major expansion of its owned brands portfolio in 2023.
“Our owned brands have long been a source of pride and differentiation for Target, offering great style and quality all at incredible value,” Hennington said.
“So, it’s no surprise that our owned brands have continued to outpace total enterprise growth and why we have plans to launch new or extend assortments in more than 10 owned brands this year.”