Target picks Los Angeles (L.A.) stores to pilot innovations

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The future of Target Corp. may be taking shape at 25 stores in the Los Angeles area which this spring will host some 50 new initiatives under way for the retailer.

«It’s a pilot we’re calling ‘LA25’ to see how we can improve the guest experience and grow sales when all of those elements are working together,” CEO Brian Cornell explained during an investor presentation in New York, Wednesday. “LA25 will be our first chance to understand how guests react when we bring different tests together in one centralized location that on their own have been very well-received.»

Cornell said Target will use what it learns from LA25 “and apply the designs for our next-generation prototype store. But we won’t wait until we ramp up LA25 before we take the proven winners and roll them out to the rest of the chain,” he added.

In a wide-ranging discussion of the retailer’s strategies, Cornell noted the Minneapolis-based company has no short-term plans to get into fresh food categories, focusing instead on getting the «basics» right.

“We want to make sure we are focused on getting the fundamentals right in food — to differentiate the assortment to be clear about who we are and who we are not,” Cornell said. “We recognize we have to improve freshness, but we’re going to be really careful about moving into new spaces that add greater complexity to the business model.”

According to John Mulligan, COO, “We’ve done a lot of work and have brought in some experts to help us think about fresh food and the supply chain, but we’re not ready to tell you what our plans are.

“The first thing for us to do is to get what we’re already doing right. If we learn more down the road, we will adjust, but what we’re really looking for today is just to do well what we already do.”

In other comments during the investor conference:

• Cornell said Target intends to continue to focus on four signature categories— style, baby, kids and wellness — to drive traffic, using food as an added convenience.

“While guests are there, we want to offer them a convenient, trusted, reliable assortment of food products. We think that’s the winning formula for Target going forward over the next few years.

During 2015 the signature categories grew three times faster than the rest of Target’s assortment, he noted, “and we’re expecting aggressive growth as we go forward.”

• Target reduced out-of-stocks by 40% in 2015 by assigning a dedicated team to dig into the root causes of persistent out-of-stocks category-by-category, which resulted in “process changes that are simple, repeatable and sustainable,” Mulligan said.

For example, Target redesigned shelf presentations to put more product on the sales floor as part of an effort to reduce backroom inventory; reduced the number of SKU’s in particular categories; and worked with vendors to optimize case-pack sizes to match each product’s rate of sale to cut down the number of touches and reduce out-of-stocks, he said.

• The chain is testing more flexible formats — down to 10,000 square feet — to bring Target stores into more urban areas and nearer college campuses, Cornell said.

“We’re very excited about the reaction to these formats. We’re opening a handful of additional locations in 2016, but we’re building a very strong pipeline in 2017, 2018 and beyond.”

• The company plans to use the assets it already has to serve customers in new, more reliable ways, Catherine R. Smith, EVP and CFO, said.

“Not that long ago growth in retail meant adding a lot of stores. Today our growth plans are focused on using the assets we have differently,” she explained.

• Noting there is no substitute for human interaction, Cornell said Target will add more “specialized team members to pilot more personalized services.” According to Mulligan, “It’s the in-person interaction that can make the in-store experience so valuable — ‘here, let me show you’ or ‘yes, I can help you’ are powerful words and go a long way in making it easy for guests to get what they need.

“As we work to move product more efficiently, we also have to remove some operational tasks so teams can spend more time helping guests with their questions,” he added.

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