MINNEAPOLIS | Target has spent more than a decade adapting to the arrival of online shopping.
For a time, it outsourced much of its digital effort to Amazon. Then it tried to fight a head-to-head battle for the attention of internet shoppers.
Now CEO Brian Cornell is shifting the Minneapolis-based company’s emphasis again to focus on a not-so-secret weapon: its stores.
While Walmart and other competitors move resources toward online operations, Target plans to invest more than $3 billion over the next three years in its brick-and-mortar locations. It is remodeling one-third of them and opening new, smaller ones in the heart of cities such as New York, Chicago and Los Angeles.
“Despite the rapid growth we’re still seeing online and others are seeing online, the majority of retail shopping in America still takes place in a physical store,” Cornell said, reiterating what has become one of his primary talking points.
The company’s approach is counterintuitive at a time when the digital onslaught is leading other retailers to shutter hundreds of physical locations and some to go out of business altogether.
Yet Target’s strategy has already shown signs of working, with an increase in sales during the spring quarter as the company remodeled stores and prepared to introduce new private-label clothing and home brands.
Whether it can build on this success will be a critical test for one of Minnesota’s largest and most prominent businesses. But some retail observers believe that Cornell has identified an important advantage that online rivals can’t counter.
“With Amazon, you can’t walk into a store and return it,” said Brian Yarbrough, a retail analyst for Edward Jones. “That’s one of the reasons why I think stores are here for the long term and aren’t going away. And it’s about convenience. Some people just like to shop.”
There is a successful model for Target’s approach.
When Hubert Joly took over Best Buy in 2012, the electronics chain, also based in the Twin Cities area, was in the midst of a do-or-die moment with Amazon. The company’s previous leaders had closed 50 big-box stores and said more would be shutting soon.
“Five years ago, there was a lot of words about, ‘My God, Hubert, you’re going to have to close a lot of stores,’” Joly said.
He bristled at the idea. Instead of viewing stores as a liability in an increasingly digital world, he argued that they were one of Best Buy’s biggest assets. Located closer to where most people live compared to its fewer and far between distribution centers, he turned the stores into shipping hubs to more quickly and cheaply ship online orders to customers’ doorsteps.
As technology has become more complex, Best Buy has also embraced the idea of having its stores become showrooms. Customers can discover and learn about the newest gadgets with the expert advice of blue-shirted employees, and the company’s Geek Squad is available to help with installation. That’s an experience that is hard to replicate online.
Best Buy, which has 1,360 stores in the United States, has been quietly closing a few dozen a year, mostly its smaller mobile phone stores that are often in shopping malls. Joly said the retailer will continue to close some stores as leases come up for renewal, but that isn’t the main plan.
“We don’t have a strategy to close stores,” he said. “We’re excited by the roles that stores can play.”
To be sure, both Target and Best Buy have also been investing billions of dollars to overhaul their supply chains to get online orders to customers’ doorsteps more quickly and efficiently. They have also been upgrading their websites to be faster and more user-friendly, with better search capabilities and display pages of products.
But online is also still a relatively small part of most retailers’ business, 4 percent of sales at Target and 13 percent at Best Buy.
Part of the reason to focus on leveraging stores is that retailers get a bigger payoff from in-store sales, said Audrey Manacek, who heads up the consulting giant McKinsey’s Minneapolis office. Online sales, which are growing much more quickly, are less profitable for retailers because they have to ship items to customers.
Still, retailers have to be in both games.
“If you just stay focused on the stores and you’re not also investing at an even faster pace in online,” she said, “you’re going to miss the curve.”
Even big believers in the future of online retail think it will evolve gradually. The Minneapolis-based venture capital firm Loup Ventures thinks the eventual balance will be 55 percent online and 45 percent in-store but says it could take 30 years to get there.
“Customer habit is hard to change,” said the firm’s Andrew Murphy. “It will take a long time.”
And then there’s Amazon itself, which shook up the retail landscape this year by snapping up Whole Foods, giving it instant access to a network of 450 stores. The move was a validation of sorts for many traditional retailers: that even Amazon has come to realize that stores are useful.