- [Narrator] Walk into a Target anywhere in the US
and you're likely to find sleek mannequins,
elaborate displays and fancy lighting.
- Target is very focused on the aesthetics
of their stores, the products.
That is what they hope makes it feel
like an elevated discount store experience.
- [Narrator] This elevated experience,
which has led some to nickname the store Tarjay,
is part of the company's strategy to differentiate itself
from competitors and draw customers through the door.
But what's happening in the front
of a Target store is only a portion
of the retailer's secret to success.
This is the economics of Target.
- Target to me is so interesting because really
they're a department store that became a discount store
and they were always going after
sort of a higher end discount store image
and that's remained true to today.
- [Narrator] Target positions itself as the option
for cheap yet chic items and customers can see
the two ideas combined when walking around the store.
In certain areas like apparel, home goods and electronics,
Target stages items with lavish lighting and displays.
But just across the way you'll still find
the standard merchandise aisles
with uniform fluorescent lights.
- Target has always tried to sort of meld these
visual expectations that we have from a department store,
like the mannequins and the good lighting and a display
for cosmetics with a discount model.
They also want you to feel like you're getting a good deal
and I think you see that as they iterate on store designs
they still strive for that combination.
- [Narrator] According to a study by Hawk Incentives
when a customer feels like they're getting a good deal
it can make them feel smart and in turn increase sales.
- Don't get distracted at Target.
Don't get distracted at Target.
Don't get this to, oh, I need that.
- Retailers always are looking for this balance
of things that bring you to the store that you need
like a gallon of milk and the things that you might buy
on a whim that they actually make more money off of.
- [Narrator] Target's store design is one of several factors
that have helped the retailer expand in recent years.
The business has grown more than 35%
in the last two years, crossing $100 billion
in annual revenue driven in large part by the pandemic
and a decision Target made five years ago
to invest in its stores.
- Lots of retailers said, "Hey, Amazon is here.
"Let's stop building stores.
"Let's remodel what we have.
"Let's develop an e-commerce model.
"Let's invest in other things."
Target has continued adding stores,
some of them tend to be smaller stores,
different types of formats
while they've invested in e-commerce
but they haven't completely pulled back
on expanding their store count.
- [Narrator] The retailer has over 1,900 locations in the US
which is smaller than Walmart, but bigger than Costco.
Around 75% of the us population
lives within 10 miles of one of these stores.
- So Target like lots of retailers, established retailers,
big retailers, has this huge benefit right now
which is they have the stores already
and you probably live pretty close to one
and that's enabled them to say,
offer things online for pick up in the store parking lot,
which has been wildly successful for them
during the pandemic because they have that store for you
to go and pick up your online order at.
- [Narrator] The majority of operations
like in-store and curbside pickup
and fulfillment for online orders
get started in the back room of the stores.
- It's been so interesting 'cause they started to say like,
"We're gonna use our stores.
"We're not gonna build big e-commerce warehouses.
"We're gonna use our stores," several years ago
and there was a little bit of skepticism
in the market because it didn't seem like you could
really be that efficient in that model.
But in the end they say they've saved a lot of money
because A they're not building a huge warehouse
which costs a lot of money up front
and they already have the trucks coming
to their stores with their goods
and they're just using those stores
to the maximum possibility.
- [Narrator] Last year targets brick and mortar locations
handled more than 95% of over $100 billion in sales.
So walk around any Target and you're likely to see
this operation in action.
Worker move carts throughout the store
gathering and scanning items.
While others watch for cars pulling up
and deliver their orders.
In effect Target hires workers specifically
for its fulfillment operations.
The company calls this role a fulfillment expert.
- They're either out on the floor
collecting goods off the shelves
just like a shopper or they're in the back room
packing up things into boxes,
getting them labeled appropriately.
They're really more like warehouse workers.
- [Narrator] And now the company is taking this
a step further in an effort to bridge the gap
between its stores and its delivery location.
- They're doing these things called sortation centers
which allow them to basically have orders from stores
that are being packed up by fulfillment workers
sent to that more central location
but still kind of close to stores
and then picked up and sent out from there.
- [Narrator] Target's success is also strongly dependent
on the items in its stores.
At any given time about one third of Target's inventory
is exclusive to the retailer through private labels.
Similarly designers will often partner with Target
for a limited time capsule collection.
- These capsule collections for Target
are sort of marketing, right?
It's a way to say, "Hey, we're high design.
"Big designers are interested in working with us."
So it gives them a little bit of that cache.
- [Narrator] These collections are nearly as fundamental
to Target as its bullseye logo.
In the late nineties top makeup artist Sonia Kashuk
partnered with Target to create a professional makeup line
at affordable prices.
16 years later Target bought the line
and today this line is only one of Target's
more than 45 private labels.
- They have become huge brands for Target
and they've added more and more
and now it's a pretty significant percentage
of their sales and private label like at all companies
can be lower price for the consumer
but more profitable for the retailer.
So there's a big interest
for any retailer going in that direction.
- [Narrator] According to a report by CB Insights
retailers can earn 25% to 30% higher gross margins
on private labels compared to manufacturer brands.
Target has yet to share the precise margin
on its private labels, but currently 11
of its brands are worth at least $1 billion
with four brands crossing the $2 billion mark.
While Target has transitioned through many iterations
since it got its start in 1962,
changing store designs many times
and acquiring businesses within its larger brand,
the company continues to evolve
with the ever-changing customer.
- They tend to kind of change strategy quickly
when things aren't working and I think we see them
in the middle of potentially another version of that
because the consumer's changing so much right now.
- [Narrator] But even as the company evolves
some aspects remain the same.
- I think the most consistent thing for Target
has been this image,
this idea that they're an elevated brand,
they're different than their competitors.
They have stuck with that since the beginning
and they still really lean on it today.