Target sharpens focus on core priorities
Today, Target has moved beyond the data breach of late 2013, recording a 4.1% lift in fourth-quarter sales for the period ended Jan. 31, and discontinued its Canadian operations.
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With these weights lifted, Target will focus on core priorities, as outlined by chairman and CEO Brian Cornell, including:
- A channel-agnostic approach to growth, driving a total Target experience across stores, online and mobile. Guests who shop Target in stores and online generate three times the sales compared with guests who shop in stores only. Continued enhancements in technology, supply chain and inventory management will create a shopping experience that is rooted in ease and inspiration. “Now, almost 75% of our guests begin their shopping experience on a mobile device,” said Kathryn Tesija, EVP, chief merchandising and supply chain officer. Target executives expect this channel agnostic focus to drive annual growth of 2% to 3% in digital sales.
- Elevating its core signature categories: style, baby, kids and wellness. Signature categories account for $20 billion in sales, representing more than one-quarter of its total sales in the United States. One key driver of its wellness platform has been the “Made to Matter – Handpicked by Target” collection of natural, organic and sustainable brands. In 2014, sales of the Made to Matter brands grew twice as fast at Target compared with the overall market, according to executives. In 2015, Target will double the size of the collection with more than 200 new and exclusive products. Sales are expected to hit $1 billion this year.
- Target will create a more guest-centric experience by tailoring its assortment and offering more locally relevant products with demographics, climate, location and other guest-led factors driving merchandising decisions. “We’ll be investing to build the capabilities to deliver a much more relevant in-store and online experience. Similarly, today’s consumer expects to receive relevant, personal offers and experiences, and we’re investing to build digital capabilities to make Target a leader in this space,” Cornell said.
- Target’s store opening plans will increasingly focus on new, more flexible formats, such as TargetExpress and CityTarget. These smaller formats enable Target to serve dense urban areas and, judging by the numbers, the concept is winning. At the CityTarget formats, for example, sales productivity is roughly double the average of its larger stores, and gross margin rates are nearly 10 points higher than the rest of the chain. As for TargetExpress, the company is seeing “strong early results” and will continue to test this format in 2015, with plans to open eight locations across the country.
Target continues to make dramatic improvements to the digital experience. More than 70% of its digital platform is new, including new mobile apps, desktop and the registry experience. This year alone, Target expects to invest $1 billion in technology and supply chain.
“Digital sales are growing at a breakneck pace. We delivered a 50% increase in digital conversion last year, and sales grew three-times faster than the industry average,” said Casey Carl, chief strategy and innovation officer. “Not only are we closing the gap, but digital sales are beginning to play a meaningful role in achieving our overall financial goals. Digital sales account for more than half of our total comp growth last year.”
As for mobile, in particular, it has truly become the “front door to Target,” Carl said. Today, 98% of Target guests shop digitally, and the vast majority of that shopping occurs on a mobile device. Last year, mobile traffic grew 44%, and conversions shot up 69%. Looking to further drive mobile, Target plans to evolve the user experience by improving its in-store location and navigation capabilities, provide greater mobile payments integration and test such new technologies as iBeacons to make shopping even more personalized.
Aligning health services, nutrition
“Our health-and-wellness experts are leading the way for the future of health care in our stores and beyond.”
For any retail pharmacy provider, that would be a bold, perhaps even overly confident, assertion. But coming as it does from Walmart, it’s something that both the U.S. healthcare system and Walmart’s competitors are taking seriously.
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Walmart’s goal, said Labeed Diab, president of health-and-wellness, is to be nothing less than “the No. 1 U.S. portable healthcare provider.” The world’s largest retailer is throwing its vast arsenal of resources behind that effort with a fast-expanding network of smaller stores with pharmacies; new pharmacy-based health services, such as immunizations, health screenings, insurance services and smoking cessation programs; a radically new concept for in-store walk-in clinics; a line of low-priced diabetic-care products called ReliOn; and a growing commitment to provide healthier nutritional choices.
“Whether it’s a small or large format, we have 140 million Americans who walk through out doors every single week,” Diab said. “In health-and-wellness, [we’re looking to be] a one-stop shop that American consumers can leverage.”
To that end, Walmart is taking big steps to make itself the destination of choice for virtually every facet of front-line, primary health services. That includes the care programs and prescription services developed by 53 U.S. clinical service managers and delivered by its 17,000 pharmacists, vision center services provided by some 4,000 opticians and optometrists, and expanding efforts to align all its health care and nutritional programs more seamlessly under one roof, according to Diab and other Walmart health-and-wellness leaders.
One major spearhead of Walmart’s campaign debuted in 2014 with the launch of a new in-store clinic format under the banner Walmart Care Clinic. The company opened 17 of the new care centers last year, positioning them as a full-service alternative to a visit with a primary care doctor with a range of health services, including urgent and preventive care, as well as management of such chronic diseases as diabetes and hypertension.
With its ambitious menu of primary health services and its radical payment structure — virtually free for employees and $40 for all customers regardless of service — the new clinic could be a disruptive force in U.S. health care if it’s rolled out nationally. “It’s just like going to your primary care physician,” Diab said.
Meanwhile, Walmart continues to drive home its message of “affordability and accessibility … the building blocks of our success.” Since the advent of its $4 generic drug pricing strategy in 2006, the company said it has saved shoppers “a total of $4.9 billion in prescription medication costs alone by switching from branded to generics.” And “the ability to walk into our stores and find affordable food [has] saved our customers $2.3 billion by offering low prices on fruits and vegetables,” to date, Walmart reported.
In addition, customers with diabetes “can save up to $784 on testing supplies per year” with the private label ReliOn brand of diabetic testing strips and other supplies, the company asserted.
On the broader front, Walmart is focusing heavily on the rapid rollout of such highly fruitful smaller store formats as Neighborhood Market, whose concentrated mix of groceries, general merchandise and pharmacy have been a hit with consumers. “Neighborhood Markets delivered approximately a 7.7% comp during the [fourth] quarter,” said Greg Foran, Walmart U.S. president and CEO. “We opened 233 Neighborhood Markets during the year, and customers like their easy and convenient access to fresh foods, pharmacy and services.”
The company also is steadily ramping up its automation, online marketing and distribution capabilities. “We’re also leveraging global best practices to increase site visits and add services such as the Asda Direct kiosk — which allows customers to order from online catalogs while they’re still in the store — to grocery delivery and drive-through pickup, which we’re testing in Denver,” Walmart Stores EVP and CFO Charles Holley Jr. reported.
Using multiple touchpoints to manage patient health
When news of Rite Aid’s acquisition of the $5 billion-large PBM EnvisionRx broke on Feb. 11, the company’s shares closed 6.6% higher that day at $8.08. That’s because Wall Street knows a good deal when it sees one, and the acquisition of EnvisionRx is a good deal. Rite Aid’s new PBM will enhance the chain’s ability to provide a higher level of care to the patients and communities served by the Pennsylvania-based retailer.
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In fact, Rite Aid in the past year has acquired a number of health offerings that put the retail pharmacy operator in a position to succeed in what has become a fast-moving healthcare marketplace. Rite Aid’s healthcare offerings include RediClinics inside select stores and its innovative Rite Aid Health Alliance program, both of which help maintain Rite Aid’s continued focus on health-and-wellness initiatives, enhance value and choice for customers, expand Rite Aid’s role in healthcare delivery, address needs of growing market segments and leverage Rite Aid’s existing store base to deliver growth.
“Over the past few years, we have made tremendous progress in strengthening Rite Aid,” Standley told investors when sharing the news of the EnvisionRx deal. “We built a strong foundation from which we are expanding our presence as a retail healthcare company. [The] announcement of our acquisition of EnvisionRx is the logical next step in our plans to enhance our ability to serve patients and drive growth.”
Rite Aid’s transformation into a comprehensive healthcare solution is felt through its stores, too. When you pair Rite Aid’s ability to better manage the overall health of a patient with such propositions as its 1,500-strong Genuine Well Being store format — including the company’s just-opened store in Harrisburg, Pa., its first net-new store since 2010 — such out-of-the-box customer engagement initiatives as the Rite Aid Innovation Challenge and an enhanced beauty offering, you have a pretty compelling retail solution that’s going to attract the best kind of customers — sticky ones.
And then there’s the expansion of RediClinics within Rite Aid stores. Beginning in the Philadelphia and Washington, D.C./Baltimore markets, Rite Aid’s 24 RediClinics will be able to treat patients for more than 30 common medical conditions. Rite Aid will field some 35 additional RediClinics within Rite Aid stores by year-end by expanding RediClinic into the Seattle market.
Another initiative that is squarely positioning Rite Aid as a provider is its recent partnership with HealthSpot on its telehealth kiosks, which will be piloted in three Ohio markets. Visitors to the HealthSpot station will be able to connect with a network of board-certified medical professionals, such as Cleveland Clinic and other major health systems across Ohio, through the HealthSpot Network.
Rite Aid’s new beauty look builds on innovations featured in previous Wellness remodels — such as illuminated displays and a free-standing nail bar — by incorporating premium brands into an expanded product mix. Stores piloting this concept also have specially trained beauty advisors who can demonstrate how products are used and help customers learn about new brands, color-matching and other current trends. “We now have 50 Wellness stores with expanded beauty departments that feature a broader selection of prestige brands and specially trained beauty advisors,” Ken Martindale, Rite Aid president and COO, told investors during the company’s third-quarter conference call in late December.
And in February, Rite Aid launched in some markets Receutics Active Skin Repairs exclusive 10-piece collection of dermatologist-strength skin care products that helps address skin care concerns. The line is expected to be available companywide by January 2016.
Augmenting Rite Aid’s health and beauty proposition to its consumer base, Rite Aid in March announced its participation in a first for the U.S. retail industry — a coalition loyalty card program that in addition to Rite Aid includes such iconic brands as Macy’s, AT&T and Hulu. The new loyalty program, called Plenti, is additive to Rite Aid’s already-robust loyalty card program wellness+, which boasts more than 25 million active cardholders.