This Is What Target's Future Looks Like

For decades a Target (NYSE: TGT) in one location looked much like one in another. There might be some merchandise differences based on geography, but the stores were largely the same.

That's something the chain has been working on changing. It has been opening up small-format stores and varying the layout, merchandise, and other offerings in its full-size locations as it remodels them. CEO Brian Cornell gave an example of how the needs of the community factor into decisions being made for each store during the chain's fourth-quarter earnings call.

"Each day today, 42,000 people walk past our Herald Square store during their evening commute. Not one of them wants to walk out with a 50-inch flat screen TV in one hand and try to hail a cab with the other," he said. "Every design decision, every merchandising choice has to be made with the guest experience being top of mind."

What is Target doing?

The chain has built a prototype "next-generation" store in Houston. It's using that model to test out concepts that will be used in some of its new stores and remodeled locations. Cornell was quick to point out that Target does not plan to duplicate its Houston prototype.

"It was designed for ease and inspiration, style and essentials, mass and specialty, and it's a glimpse into our future, not because we plan to open dozens of new stores just like it, but because we're picking and choosing elements from that prototype to create customized concepts for every store we remodel," he said.

In 2017, Target released plans to remodel 600 stores over three years. It completed 110 last year and plans to remodel 325 in 2018. It has also raised its overall target to 1,000 remodels by 2020. In addition, the chain plans to open more small-format stores in "prime urban markets," though Cornell did not name a specific number.

It's an omnichannel world

Target has only been shipping online orders from its stores for a few years. Now, more than two-thirds of its digital orders are fulfilled in this way. Cornell explained that the line between a digital and in-store sale has blurred.

"So, now, if I'm sitting at my desk and I order something from, but I pick it up on my way home, does it make sense to call it a digital transaction? If I buy a patio set with my phone while I'm sitting on the store display model, is that a digital sale?" he said. "Our finance folks would say yes. I can tell you, our guests could[n't] care less."

Target has been working to continue to add omnichannel convenience. This includes improving its app and investing in a 360-degree digital shopping experience on its website.

It's an evolving experience

While Target has figured some things out, Cornell acknowledges that the market continues to evolve. That's partly why the company bought Grand Junction and Shipt, two technology companies that will help the retailer with shipping logistics and same-day delivery.

To continue to grow sales Target has to keep innovating both in its stores and online. It also has to focus on making it as easy as possible for consumers to order or buy from the store and then get the product home in whatever way they want.

Target has been smart in investing heavily in both modernizing its stores and increasing its investment in technology. It must continue to recognize that what works today may not be as successful tomorrow. Cornell appears to understand that and the retailer should continue to tweak its mix and offerings based on consumer demand.

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Daniel B. Kline has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.