TGT
#<UNK>, let me talk about the pricing investments we're making.
And I think, as most of you know, coming out of the data breach, we invested heavily in promotions.
As we go forward, we're going back to our roots and reestablishing our everyday low price commitment.
So that's going to take some time.
It's starting today.
We're going to make sure that we reestablish our value with the guest.
There's an investment we have to make.
And we also recognize we have to continue to invest in digital, to grow that channel, to continue to make sure we are accelerating market share.
You're going to see us invest in 2017.
As <UNK> talked about, we expect greater efficiencies over time.
One, as we continue to optimize our digital performance, but importantly, as we transform our supply chain.
But in the short term, we have to compete, we have to invest to make sure we're delivering the value the guest is looking for.
We want to make sure we're taking market share, both in-store and online, and we think those are two very important investments in the near term that provide long-term benefits for the Company.
Thank you.
I will go back to what <UNK> talked about just a few minutes ago.
We certainly view 2017 as year of investment.
In 2018 we will continue to transition as these different initiatives begin to mature.
As we get into 2019 and beyond, we certainly expect stability and a return to growth.
That's the model we are looking at.
We can't lay it out for you quarter-by-quarter.
We want to make sure we're properly investing and accelerating these initiatives.
And if there's a message I want everyone to walk away with today, these aren't new initiatives.
We've been working on these for several years.
Now is the time for us to go faster.
This is about accelerating at the right pace for our business.
But whether it's our digital channel, the work <UNK> talked about in the supply chain, the acceleration of remodeling our existing stores and reimagining that experience, or opening up these new smaller formats, we've got to step on the accelerator.
And as they mature, we are going to return to growth, we're going to capture market share, and we're certainly going to see the benefits that our shareholders are looking for.
<UNK>, it's a great question, and it's embedded in everything we've talked about today.
The reinvestment in our stores, reimagining over the next few years hundreds and hundreds of stores.
We've certainly learned in our tests in both Los Angeles, and as we've remodeled stores in Texas, that as we bring a new experience that drives traffic to our stores.
As <UNK> and his team continue to roll out these new proprietary brands that are unique to Target, that drives traffic to both our stores and our site, and we've seen that with Cat & Jack, a $1 billion brand in year one, on its way to being the number one kids brand in America.
So as we continue to elevate brands, those drive traffic to both our stores and our site.
As we move into our new urban neighborhoods, it's striving for traffic every single day.
So as we think about how this smart network comes together, brands play an important role, that in-store experience is critically important, being in the right neighborhoods.
But then we also know from a digital standpoint, more and more of our guests are ordering online and conveniently coming to our stores to pick up that order.
That allows us to really make sure that once they're in our store they continue to shop.
All of these elements are all about driving traffic to our stores and more visits to our site, and as they mature, that certainly is going to be one of the key metrics that we will all be tracking.
Let me start with price, let <UNK> talk about brands, and the <UNK> can talk about our real estate portfolio.
I think you answered the question for us.
As we think about the investments we're making in price, we will start with those core essential and food categories.
Those trip drivers that <UNK> just referred to.
We've got to make sure that we move from a promotional cadence back to our traditional every day low price and great value every time the guest shops in those core personal care, household essential, and food categories.
We will certainly make sure we're revisiting price across the box, but it certainly starts with making sure we are priced right on those trip driving items that our guests depend on Target for every day.
<UNK>, why don't you talk about some of the brand work.
Yes, as we roll out the new brand work we're looking at guest insights about what brands and what spaces we should play in, but more importantly, what is the sweet spot on pricing for regular everyday pricing.
So as we reset these brands, we are going to be defining great value every day for our guest as we introduce in every niche in the business.
<UNK>, I will quickly address store portfolio.
As we said, we've had a very disciplined process forever.
The team has done a great job.
Our pace doesn't change, we've been closing about 10 to 15 stores a year, that has been consistent year in and year out.
We will continue to do that, but that's just normal course for us.
We look at every store every year and say does it make sense to keep open.
Today the answer is, yes.
Universally generate positive cash
<UNK>, on the store front, just to close that out, and I know we talked about it during our prepared remarks but our store portfolio is not mall-based.
We are in some of the centers where most of the retailers are trying to migrate to.
We're very fortunate that over time we built 1,800 stores that are effectively located.
They are in the right neighborhoods, they are not off remotely on interstates, they are not tied to dying malls.
We have an obligation to revitalize some of those stores and re-image some of the stores, but one of the things that where most confident about is we have an exceptional store portfolio.
So as we invest, as we bring those stores up to the expectation our guest has from Target, we expect those to drive traffic and continue to flourish in the years to come.
<UNK>, I'd start out by talking about the last couple years as being a time of very disciplined capital allocation.
We've taken a very surgical approach to some of these initiatives.
We've remodeled 25 stores in Los Angeles.
We've been testing and learning and iterating, improving the expectation that the guest has, making sure we deliver against that.
Now that we've got the feedback, we're ready to accelerate.
<UNK> talked about we have opened up 32 small formats, not 300.
We studied each one of those very carefully to make sure we understood how to customize them for new local neighborhoods.
Now that we understand the expectation, we are ready to accelerate.
From a capital standpoint, we've actually benefited from the fact that <UNK> has taken a very disciplined approach to setting priorities within technology, and we've seen phenomenal improvement in our platforms, our capabilities at a lower cost.
Our approach to capital has been very disciplined.
We've been testing and validating and learning.
Now that the learning is complete we are ready to accelerate those investments.
But we have been very disciplined.
<UNK> talked about supply chain.
We know the changes that we need to make, but we have been very surgical, very disciplined in putting together that playbook.
Now that it's in place, we will begin to accelerate.
So from a capital standpoint, we will continue to make sure we're very thorough, we test and validate, but once we've completed the learning, we will be ready to accelerate.
And that's what you're seeing as we think about the next three years.
Why don't I start and then I will let <UNK> talk about some of the progress we've seen on grocery.
And while we didn't spend a lot of time on it today, I want to make sure it's very clear.
We're very focused on improving our grocery performance.
But we haven't just been standing still.
We've made significant progress in procurement, in supply chain, in making sure we've improved our assortment, in making sure in those test stores in Los Angeles and Dallas we understand the changes that need to be made in the in-store experience.
We're going to follow it up immediately with the right investment in pricing to make sure we are competitively priced every day in those key categories.
So we've got more work to do, we're certainly not satisfied with where we are, but we have been making progress, and there's bright spots, <UNK>, that I think you can talk to.
Yes, just looking at the format, fresh produce is a really good example where we've changed our supply chain, our assortment and are focused on quality and value.
So investing there has really made a difference where the guest has perceived and responded to with great growth in key categories.
So here we've invested in fresh, and we've gone from an organization that used to deliver multi-times a week to every single day, increasing the freshness and quality and guests are responding.
Some of the tests that <UNK> talked about in LA and Dallas have really paid dividends for us.
And one great example of that is our adult beverage business where we've seen great growth in 2016, and we're going to amplify that growth and accelerate in 2017.
This is a business that for us was our number one growth category throughout all Target, and we see an upside of $1 billion business here that we're fast tracking on in 2017.
<UNK>.
Yes, so the key focus of the brand growth is really in what we talked about with <UNK>, and our key strength there is apparel, accessories, footwear and home.
These are high margin and high strength areas for us.
And we believe that Target has the right DNA on exclusivity and differentiation.
Our guests love it, our brands, and have loved them.
But we've been a little slow here in terms of the changing face of the guest.
And I guess the insights showed that we could sharpen that and bring new ideas.
Great proof of concept in 2016 with the launch of who, what, where, Pillowfort and, of course, Cat & Jack, that showed us where we replaced our strengths with a new focus we could create double-digit comps and guest love and trips for our store.
So we've taken key areas across ---+ men's, women's, home and kids and are going to amplify our offers there and redefine.
In terms of overall space, we're just utilizing our existing space and really refreshing that.
One of the things we're excited about in 2017 is this combination of new brands, capital investment in the space for those brands, but also the addition of extra resources like visual merchandising.
They're really going to create a new experience for the guest in-store and create real excitement.
Why don't I start.
I think the proof is in the results we've delivered.
Outstanding results, as we've talked about with the launch of Pillowfort.
The same thing has been true with Cat & Jack.
This is an example of where we've gotten the value equation right.
Great quality, on trend, at a great value and the guest response has been terrific.
That's the same approach <UNK> is going to take with each one of those new brands, making sure we combine great quality, items that are on trend for the consumer with the right value that drives trips, but also makes sure the guest recognizes they're getting value from Target, so coming back to our brand promise.
Expect more and pay less.
Those elements have to work hand-in-hand with our new brands going forward.
<UNK>, do you want to start with supply chain and we will finish up with guidance.
Kathy, why don't I start by talking about the competitive landscape and let <UNK> talk about guidance.
But to your point, we certainly see over the next three years significant market share opportunities as we see the contraction in our competitive store base.
And that is going to be particularly true in the apparel and home spaces where we're strongest.
But we also recognize, as you do, as many retailers are closing stores, if not exiting the business.
The short-term implication is massive promotional discounts which takes consumers out of the marketplace for a period of time.
So over the long haul, this is a growth story we are putting together.
We think we are going to see significant market share opportunities across a number of categories.
To capture that, we need to make sure we've got the right in-store experience and a very strong and easy digital experience for that guest.
But in the near term, you're going to see deep discounting, you are going to see liquidation sales, which takes prices down and takes consumer trips out of the marketplace.
But over time, we see significant market share opportunities.
Yes, the only thing I'll add on to that, because that's where I was going to go too, is we are absolutely investing to be able to play offense.
We see this as a huge opportunity for Target when you think about the playing field that's going to be available.
And so we are investing to play offense.
But I don't anticipate, and we don't anticipate, that to be demonstrably changing this year.
This year is an investment year for us.
As we set ourselves up for that great success to take the share over the next multiple years, there is going to be a ton of disruption in this space.
Why don't I start by talking about food, let <UNK> add some additional color, and then give <UNK> a chance talk about our digital approach going forward.
One of the things that we've talked about over the last year as it pertains to Target's food and beverage offering is the recognition that we don't have a full service grocery experience.
We don't have meat and seafood counters, we don't have deli counters.
We don't provide a full assortment of experiences and services that many of our full-line competitors do.
But we can offer a great self-service, convenient experience.
And that starts with the right quality, the right assortment, the right in-store experience, great value.
We've got to make sure we are supplying those products to our guests every single day to make sure the freshness is there.
So we are embracing who we are.
And we want to make sure that the guest knows while they're shopping at Target there is no compromise.
We've got to build trust, we've got to make sure that while they are there shopping for their baby, picking up a toy for a Saturday night birthday party, picking up something new to wear for dinner that night they have confidence in the selection and breadth of food products we offer.
We are being true to who we are and we're not a full service grocer.
We don't have rotisserie ovens in our stores, but we do have the right allocation of space and selection to compete and be that convenient alternative in food, and we're going to held on that going forward.
We're very pleased with the response we've seen in Los Angeles in Dallas where we enhance that experience, where we improve the assortment.
The reaction, as <UNK> talked about, to categories like craft beer and wine that fit in very well with the Target guest.
We've got to strengthen that offering, make sure we have got great quality, the right assortment, that we've got the right experience in-store.
And that we provide the right value the guest is looking for.
So we will continue to build off of that going forward and make sure that while our guests are shopping Target they are also shopping our food and beverage offering.
Yes, I think our space is set.
We're not talking about flipping or divesting or investing in more space, it's how we utilize the space more definitively.
And I think that what we've learned in these test markets is the role of fresh and convenience in creating trips and creating guest love as being very powerful.
Reformatting the space and really curating the assortment is more of what we're focused on rather than wholesale changes to macro space.
<UNK>, why don't you talk about where we are with digital.
Sure.
We've spent very little time talking about our performance in 2016.
We felt great about how we exited the year, comps up 34%, making really good progress, like we've doubled the business in the last couple of years.
So why don't you talk about where we are and where we're going.
Look, I think, particularly in the last year the focus has been on guest experience and making our floor as a great guest experience.
And while some of those investments may not have been obvious and they have pay dividends.
We grew the business at almost twice the rate of the market last year.
<UNK> talked about earlier how we expanded our ship from store capability which has been really, really important to as.
We shipped about 1 million parcels to our guests in the two days following Cyber Monday.
And that's really important because that is our cheapest route to the guest at home is shipping from our stores.
And as we can expand that model, we can be closer to our guests physically, and in time, and we have the lead time during the holiday period to guests, as well.
So all of those investments have improved the guest experience.
We've almost doubled our guest satisfaction rating over the course of the year whilst we grew the business at twice the rate of the market.
And we see that again going into this year.
There will be a relentless focus on the guest experience going forward.
All the work that <UNK> and his team are doing to reconfigure our supply chain will give us a lead time advantage and a cost advantage as we deliver more and more parcels to our guests doors.
The work that <UNK> is doing on assortment and creating exclusive product, exclusive brand for Target that isn't available anywhere else will be vital to our online merchandising going forward.
We will always look at other ways maybe of how we might expand our assortment online, but right now we've got our sites fairly firmly focused on how we can get to guests quicker, how we can execute flawlessly, and how we can bring exclusive brand and product to our guests.
<UNK>, we spent a lot of time as a leadership team looking at different alternatives.
There was only one path forward.
That's the path we've chosen.
We've got to win best to grow.
We've got to reimagine our stores, we've got to enter new neighborhoods, as we're doing with these small formats.
We've got to transform our supply chain.
We have to build out the digital capabilities required in this environment.
We have to continue to elevate our proprietary brands.
And I think most importantly, we just have to embrace the realities of this new era of retailing, and make sure that we also embrace the way consumers are shopping today.
We certainly debated whether there were other options.
Every time we came to the table there was only one conclusion, and it's the path we've chosen to follow.
We think this is the right path for our Company, the right path for our shareholders, and ultimately, it's a path back to growth and an expansion of market share.
We've done our homework, we've looked at this from every different angle.
This was the path we kept coming back to, it's the right path for the Company today.
It will be the right path for the Company 10 years from now.
<UNK>, why don't I start with the metrics, the things that we're going to be watching closest.
It's going to come back to, we're going to watch the guest.
How does the guest respond when we reimagine a store.
How do they respond when we move into new neighborhoods.
How do they respond when a new digital offerings.
How do they respond as we roll out new brands.
Ultimately, that guest satisfaction and that guest vote is the most important one.
And when they are in our stores more frequently and visiting our site more frequently, and shopping with Target versus other retailers, we know we are winning.
But we're going to clearly monitor the guest reaction as we remodel these next 100 stores in 2017, and we continue to accelerate with another 30 small formats.
And as <UNK> introduces new brands throughout 2017, and <UNK> enhances our digital offering, it's going to come back to the guest reaction.
And we are fighting for footsteps, we're fighting for clicks online and we're fighting for a share of mind.
So for this to be a growth story, it is all about gaining market share and that starts with building greater trust, greater loyalty with our guest.
So we will be watching that each and every day across these initiatives we've laid out today.
Yes, <UNK>, maybe I can address the other two questions, <UNK>.
This is a multi-phase, multi-year journey, and we tried to make sure we set that expectation.
We are recognizing that the environment is going to be disruptive.
And we've got a ton of work still to do, although, we're not we're not starting from scratch, we're going to accelerate that pace and that investment.
We are not, and we guided that in our guidance, planning for anything but low-single-digit negative declines this year.
And that's what we said, it's an investment year.
As we move into transition and then we will get into stability where we can sustainably, consistently drive profitable growth and market share gains, and so I want to make sure we do set that expectation appropriately.
On your question with regards to how the capital allocation is being spent over, that $7 billion investment over the next three years, it's really in the three areas of <UNK> talked about, the three big areas.
The biggest ones being, obviously, as we reimagine our stores because they will still be central to our story.
Their roles will evolve but they will be significant investments there, as well as the new stores, supply chain and digital.
And that's exactly where you would expect us to be spending that money.
<UNK>, why don't we come back to the shipping question.
The reality is that in a digital business one of your biggest costs, biggest marginal costs is transportation, and it is cheaper for us to drive, or to deliver from our stores which are, as we said, about 10 miles from 75% of the population.
So that last leg being very shorter makes it our cheapest option.
The marginal cost of us getting product to the stores on the back of our existing network, that already ---+ to the distribution center is already out there ---+ is very, very low for us indeed.
The additional cost on that last mile is very low.
We also have, of course, order pickup which is probably our most economic fulfillment channel.
Why don't we, <UNK>, you have been very patient waiting, waving your arm.
Why don't we see if we can get him a microphone.
<UNK>, let's try to unpack those questions.
Let me start with the last one, as we've think about the role of data science and analytics.
I made the comment that three years ago this was a nascent capability for us.
It's now quickly become one of the strengths of the Company.
We're applying that across all of our various functions.
It's helping <UNK> and his merchant team make better choices.
It's certainly enabling some of the work that <UNK> is leading from a supply chain standpoint.
It's influencing how we lead and manage our stores.
And <UNK> can talk about the important role it plays as we think about digital and the personalization of our communication.
Data science is going to play an important role across all of our functions going forward to make the Company focused on the right decisions, smarter decisions, more personalized decisions.
<UNK>, why don't you talk about the role that it has played just recently as we think about digital and how we are interfacing with the guest.
I think, as <UNK> says, it's an important, it's a very important growing area for us.
Data sciences team out in Sunnyvale we have over 40 PhDs who are doing nothing but thinking of clever ways to how we tune our supply chain and how we personalize the offer to our guests, particularly online.
One recent improvement they've made is on some of the bottom recommendations that we give on our homepage.
We've seen an eightfold improvement on conversion rate on that.
We do note that as you make that experience more relevant to the guest that we will improve our sales online.
It will improve our conversion rates.
That's just one example.
And I've seen a lot of examples in <UNK>'s area around how we are improving sales forecasting and our ordering algorithms which has helped the flow of stock all the way through our supply chain.
Let me try to come back to your question around the consumer trends, the role of the Millennial, how that takes shape over the next three to five years.
I think as we look at it today, I will start with the investment we're making in our stores.
And as we've looked at the outlook, as you've done the math, while we expect this continued accelerated shift to digital, stores are still going to be very important.
And pick the number three years from now, the stores represent 85% or 80% or 75% of the business.
I don't know.
But even if they are 75% of the business three to five years from now they are still the dominant portion.
What we know every time we talk to the consumer, every time we talk to the guest, they crave experience.
If they're going to shop a physical store, they want it to be a great experience.
We've seen the reaction to the changes we've made with visual merchandising.
Some of the things that <UNK> and his team are bringing to light every day in our stores in our apparel and home categories.
We have to make sure it's a great experience.
If they're using our stores as a smart pickup point, we need to make sure when they come to our stores they are greeted by phenomenal team members who can quickly find their order and invite them to shop more often.
So we've got to make sure that experience is critically important in our stores.
We know going forward that Millennial consumer that we serve, they are going to be digitally connected, and their shopping experiences are likely always going to start with that digital device.
Then they will choose whether they want it delivered to their front door, they want to pick it up, or they just want to make sure they know where the products are placed inside of that Target store in their neighborhood.
So we've got to embrace the way consumers are shopping, but we recognize when they come to a physical store they expect a great experience.
When they shop online, they want it to be really easy.
When they come to pick up a product at one of our 1,800 stores, we've got to make sure the product is there, we've got the right items and we invite them to enjoy the convenience that we did the shopping for them.
Now they can take the next 20 minutes and explore the store and discover and enjoy the merchandise that we have to offer.
So physical stores will continue to be important.
But we have to reimagine that store experience.
Today's Millennial shopper doesn't enjoy shopping one of our tired stores that has not been touched in 10 years.
But they love the reimagined stores and they give us that feedback, as we've remodeled stores in Los Angeles and we have reimagine stores in Dallas, or as we open up new flex formats.
The feedback we are receiving is sensational.
And they use those flex formats, those smaller stores as places to fill in, but they're filling in two or three times a week.
We are looking at it very carefully, but we know stores will be very important, but it's going to be part of our smart network where we combine the digital experience, the store experience as one and make it really easy for the guest to connect with Target any time they want, any way they want in their local neighborhoods and towns.
Let's go back to pricing.
Let me make sure we are really clear about what we're doing and why.
We spent a lot of time looking at the changes that we had made following the breach.
We were very promotional.
That promotional intensity has actually continued.
As we go into 2017, you're going to see us get back to our roots, get back to establishing every day low pricing in those essential categories.
There will be a transition period, but it's really going back to it's always worked for us in the past, and moving away from that promotional intensity, the reliance on big promotions to making sure we give our guests the confidence and trust that every day they shop in our stores for those core essential items they're getting a great value.
It's a transition, there's an investment involved in that, but it's really getting back to it's made as great going in the past and really making sure that's part of what we bring going forward.
We will continue to be very disciplined.
As we talked about the question about capital allocation, we're still going to be Company that will continue to innovate, innovation is very important.
Innovation is alive and well at Target.
But we're going to make sure we test, we learn, we validate.
The innovation has to benefit our core enterprise.
It has to translate to driving more traffic to our stores, more trips to our site, greater guest loyalty and engagement.
Innovation will be an important part of our future.
We will do it, as we've done in the past, in a very disciplined way.
When things don't work we will shut them down.
When we need to iterate, we will continue to iterate and learn, and when we've validated the model we will step on the accelerator, as we are right now, and we will move forward quickly.
I guess we've got time for one only last question.
Why don't we go over here.
<UNK>.
<UNK>, you want to start with stores and then I will come back and talk about pricing.
Yes, just to check off really quick, cost of a remodel for a prototype, what we call a P store, $5 million, $5.5 million, a little less for lower volume stores, a little more for higher volume stores.
Super Target, what do you think, <UNK>, about double.
No, a little less than that.
A little less than double.
Store execution, I would say two things about.
One, on out-of-stocks, made a lot of progress.
When we talked about it last year they had improved by about 40% last year, almost another 15% improvement.
We've seen significant improvement in doing what we do today.
The next leap in improvements in out-of-stocks in our stores will come from fundamentally changing the supply chain, which is what we talked about today.
That's on course, and we will keep working on them and we'll update you as we go forward, I guess.
And, <UNK>, I will finish by talking less about price and lot more about value.
We know we have to be competitively priced every day on those core essentials.
But we win when we deliver a compelling value, which means a great in store experience.
Which means new exciting brands, which means surrounding the guest with great team members, which means a great online experience that's easy and friction free.
So it can't be just about price.
It has to be about value.
And value is the combination of all the things we do and historically have done so well.
We've got to make sure we surround the guest with a great in-store experience.
The reaction we've seen as we have brought visual merchandise to like in our stores has been fantastic.
We've got to continue to build compelling brands that deliver great value for the guest.
We've got to surround them with a great experience, whether they're picking up an item or checking out in our stores.
And that's got to translate to how we interface with the guest online.
Value is critically important.
We think we're positioned in a way that's unique in the industry with our assortment, our in-store experience, our multi-category portfolio, the capabilities we've now built online and the changes we're making in-store.
That's what gives us so much confidence that we are on the path back to growth.
That it will take time, but there's going to be significant market share opportunities in front of us, and three years from now when we've reimagined stores, and we are in new neighborhoods, and we've rolled out new brands, and we've got it great new supply chain capability to complement what we've done from a digital standpoint, we will be sitting here talking about the new Target, a growth Company that's captured market share in this new era of retailing.
So I appreciate your time and your patience today.
Thanks for joining us, and we look forward to talking to you in the future.
So thank you.
