Target CEO outlines strategy for the road ahead
NEW YORK — Target chairman and CEO Brian Cornell unveiled a wide-ranging growth strategy that combines familiar concepts with dozens of new initiatives related to merchandising, digital, expense control, process improvement and a major shift in corporate culture designed to drive growth for the next five years.
In a highly anticipated presentation to investors late Tuesday, Cornell outlined five priorities that will guide the company in the coming years. Members of his senior leadership team elaborated on specific strategies, store formats, digital integration and huge investments in supply chain and information technology to accelerate growth in 2015 and beyond.
“Following a thorough, strategic review of our business, coupled with a careful evaluation of the changing retail landscape, we have identified the key initiatives that will put Target on a clear path to growth,” said Cornell. “We’re focused on our future and building the capabilities that will take us further, faster. Redefining Target will require a renewed emphasis on prioritization and innovation, and above all else, putting our guests first in everything we do.”
Cornell said the company has identified five priorities, beginning with a channel agnostic approach to serving shoppers in which mobile serves as a virtual front door to the brand. A second priority involves an emphasis on four key categories of style, baby, kids and wellness that Cornell said represent sales of $20 billion and are areas Target has historically been known for.
A third area of localization and personalization refers to both product assortments in stores and marketing communications in the digital age. “Today’s consumers expect us to have locally relevant assortments. This is not a new concept in retail, but it represents a meaningful opportunity over time as we deliver a much more relevant experience in stores and online.”
New urban formats was identified as a fourth priority with Cornell noting that Target has a compelling opportunity to deliver a differentiated experience with its City Target and Target Express stores. City Target stores, the first of which opened in 2012, are about 25% smaller than a typical 135,000-sq.-ft. Target store, but they enjoy twice the sales productivity with a 30% gross margin and generated an 8.6% comp increase last year.
“We are also very excited about the Target Express format,” Cornell said, noting that only one unit is open so far with eight more locations planned for this year.
The fifth priority area involves simplicity and cost control. Cornell is intent on finding new ways for Target teams to be more nimble, quickly establish priorities and restore an entrepreneurial spirit to the company all the while cutting a whopping $2 billion from the expense structure in the next two years. The savings will be realized through operations, technology and process improvements, supply chain and sourcing efficiencies and corporate restructuring. Roughly $500 million is expected to come from a reduction in cost of goods.
Target said the restructuring will be concentrated at the company’s headquarters where the effort to become leaner and remove complexity means the elimination of several thousand positions over the next two years.
More immediately, Target expects to take a $100 million restructuring charge during the first quarter, according to CFO John Mulligan, who provided a bevy of financial targets for 2015 and longer term. This year, Target expects same store sales to increase between 1.5% and 2.5% and with modest improvement in margins and expense rates full year adjusted profits per share are forecast to range from $4.45 to $4.65 compared to $4.27 last year.
During the next five years, Mulligan said Target’s forecast calls for same store sales growth of 1% and total sales growth of 3% annually with gross margins of 29.5%. Expenses as a percent of sales are expected to range between 19.5% and 20% resulting in an operating margin of 9.5% to 10% that is slightly below the company’s peak rate of profitability.
Between future dividend increases and billions of dollars in annual stock buybacks complementing forecast earnings per share growth of 10%, Mulligan said Target’s total shareholder return would be solidly in double digits.
“We are confident this plan is achievable,” Mulligan said.
His confidence stems from the loyalty of Target’s customers, multiple merchandising initiatives to drive sales and new ways of connecting with shoppers outlined by Kathee Tesija, chief merchandising and supply chain officer and Jeff Jones, chief marketing officer. Tesija said considerable shopper insights work had resulted in Target identifying a new core customer she described as a “demanding enthusiast,” who is digitally connected, loves to shop and demands great value. She also described a new framework for how Target is thinking about categories and developing assortments based on whether a category is defined as signature, outperform, perform or reposition.
“Nothing is sacred. We are putting every part of our go to market strategy on the table,” Tesija said. In addition, she highlighted several areas where the company would be looking to reassert its style leadership after losing its edge. The recipe for doing so, Tesija said, has three ingredients; exciting and differentiated products, more inspirational and compelling presentation and more engaging marketing.
The investor conference followed what was a good holiday season for Target. The company regained traffic and faced easy comparisons from a year earlier when it had to get super aggressive with pricing and promotions after suffering data breach. Cornell said he was excited about the progress the company has made, but conceded Target is in the very early stages of a transformation that will have it looking very different three years from now.
Boots U.K. pilots MobileFirst sales assist app
NOTTINGHAM, U.K. — IBM Inc. is expanding the IBM MobileFirst for iOS portfolio of apps for retailers. Boots U.K. and American Eagle Outfitters are among the retailers who have signed on for MobileFirst apps.
“The pilot of the IBM MobileFirst for iOS Sales Assist app will seek to explore how we can further empower our colleagues to be able to turn each customer interaction into a unique and personal experience," said Robin Phillips, director of multichannel, Boots U.K. "Boots colleagues will have access to real-time data and insight from across the company in the palm of their hands, allowing them to offer shoppers even greater levels of service- including real-time stock availability and easy in store ordering."
New Mobile First apps for retail include Dynamic Buy, which gives retailers gain real-time perspective and data-driven recommendations on how products are performing and seasonal recommendations, for example, helping retailers realize better return on investments, according to IBM.
Built exclusively for iPhone and iPad, IBM MobileFirst for iOS apps are delivered in a secure environment, embedded with analytics and linked to core enterprise processes. The apps can be customized for any organization and easily deployed, managed and upgraded via cloud services from IBM specifically for iOS devices.
Study: People more activated in their care have better health outcomes, lower costs
SAN FRANCISCO — An increase in patient activation can improve health outcomes and lower costs, according to a new study published in the March issue of Health Affairs.
Researchers from the School of Nursing at the George Washington University, University of Oregon and Fairview Medical Group assessed the relationship between changes in a person’s activation level and changes in health outcomes and cost and found they were associated.
“The Patient Activation Measure study is important for two reasons. First, it is the largest, longitudinal study to look at the impact of an individual’s activation levels on both health outcomes and cost; and second, the findings show that activation levels are related to clinical, behavioral and utilization outcomes as well as health care costs,” stated Valerie Overton, VP for quality and innovation at the Fairview Medical Group.
Conducted at Fairview Health Services, a large non-profit health care system in Minnesota, researchers examined activation levels of more than 32,000 adult patients using the Patient Activation Measure score, a metric used to quantify a person’s knowledge, skills and confidence in managing one’s own health and health care. The two-year study found that higher baseline activation levels were predictive of better health outcomes in nine of 13 health indicators, including maintaining high-density lipoprotein and serum triglycerides in a normal range – important clinical outcomes associated with diabetes and heart disease.
In addition, more activated patients had a greater likelihood to obtain potentially life-saving screening tests such as pap smears and mammography as well as avoid a hospitalization or emergency department visit two years after their Patient Activation Measure level was collected, according to the research.
“For accountable care organizations and other delivery systems looking to reduce costs and improve the health of those they care for, this study suggests that patient activation can be a critical pathway to achieving these goals,” stated Judith Hibbard, professor emerita and senior researcher, Health Policy Research Group at the University of Oregon and developer of the Patient Activation Measure. “The greater the activation level, the greater the odds of better outcomes and lower costs,” she added.
The Patient Activation Measure is categorized into four levels with level one being the least engaged and four being the highest. Patients in the study were primarily female, with approximately 4-out-of-5 in the top two levels of activation. Key findings include:
• People who were at the lowest levels had significantly lower odds of having positive outcomes for seven-of-13 health indicators compared with those who remained at level four in both time periods.
• Similar patterns appeared when examining the activation levels and billed costs. When people stayed at the highest level of activation over the study period their projected costs were 31 percent lower than for people who stayed at the lowest levels.
• Costs for people moving up or down levels, also moved in the same direction as their activation level changes. People who moved down from activation level four to three over one year were 14% higher than those who stayed in level four. Those moving from three or four down to levels one or two had projected costs that were 27% higher than those who were in level four both years (lowest average per capita cost $6,411).