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We review Target’s third quarter performance as it heads into the critical holiday season.

Comp stores sales up 5.1%

Target’s second quarter net revenue increased 5.6% to $17.8bn. Comparable sales growth increased 5.1%, with traffic up 5.3%. Operating income fell 3.3% to $819m. This continues the impressive sales performance the retailer has delivered year-to-date. It expects comparable sales growth of approximately 5% in the fourth quarter. Commenting on the performance, president and CEO, Brian Cornell, stated,

”We've made significant investments in our team heading into the holidays and they are ready to serve our guests with a comprehensive suite of convenient delivery and pickup options, a wide range of new products and unique gift ideas and a strong emphasis on low prices and great value. We plan to leverage our current momentum into 2019, when we'll achieve greater scale across the full slate of our initiatives - creating efficiencies and cost-savings, further strengthening our guest experience and positioning Target for profitable growth in the years ahead.”

Source: IGD Research

Digital sales up 49%

These results reflect Target’s ability to deliver in the short-term while transforming the business over the longer-term. This was evident by the retailer’s digital sales, which increased 49% in the quarter, up from 41% growth in Q2. Target continues to benefit from the range of fulfillment options it has launched and its acquisition of the on-demand, delivery company, Shipt. This service is currently available from 1,400 stores while its Drive-Up program has been extended to 1,000 stores.

Store improvements fuelling traffic and sales growth

However, the retailer’s growth is being driven by more than just strong digital sales. It is also seeing traffic and sales growth within its stores. It is benefitting from the capital investments it is undertaking to remodel its stores, enhanced product presentation and its suite of private label brands. Remodelled stores continue to deliver a 2-4% sales uplift, with the business on-track to complete 300 remodels this year.

Aiming to win with toys in the holidays

The business believes it is well positioned for the holiday season. Toys is a focus, following the exit of Toys R Us and Babies R Us from the market, with comp sales for the category up by more than 20% in the third quarter. It also saw double-digit growth in baby category sales. It has increased space for toys in more than 500 stores, with 100 stores seeing the category completely remodelled. Around 2,500 new products have been added and a new kids gifting catalogue launched.

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We look at the strategies of some of the major US retailers, for who Black Friday is a major event and a kick-off to the critical holiday season.

Sales impact spread across five-day weekend

Although Black Friday is the traditional key shopping day in the US, with many retailers opening their doors a day earlier on Thanksgiving Day and launching pre-Black Friday deals, this has become a multi-day event. The growth and development of the online channel, along with dedicated events such as Cyber Monday and Green Monday, have also shifted impact of Black Friday itself. The National Retail Federation estimates that 164m consumers plan to shop over the five-day Thanksgiving weekend, with Black Friday being the busiest day with 71% planning to shop.

General merchandise focused event

While grocery retailers are mainly focused on the Thanksgiving meal opportunity, Black Friday events are typically centred on general merchandise product categories, with toys, TVs, computers and mobile phones being at the heart of many retailers’ plans. Toys is a major focus this year, following the exit of Toys R US. All the major retailers, including Walmart, Target and Amazon have extended their ranges and bought more inventory. Walmart and Target have also increased the amount of space dedicated to the category in-store. Kroger has also added ‘Geoffrey’s Toy Box’ to nearly 600 stores for the holiday season, offering a selection of toys which were once exclusive to Toys R Us.

Source: Kroger

Creating an in-store party atmosphere

One of the new ways that Walmart is aiming to drive traffic to its stores this year is with a “Light Up Black Friday” party for customers. Running from 4pm to 6pm on Thanksgiving Day, before shopping officially starts of 6pm, this will be a large-scale sampling party, with the retailer giving away an estimated four million cups of coffee and two million Christmas cookies. Walmart will also be looking to make the in-store shopper journey as easy as possible. The store map feature within the Walmart app will transition to a Black Friday version, while ‘Check Out with Me’ associates will be positioned around the store.

Source: Walmart

Exclusive deals for loyalty card holders

Target has already been active on the promotional front, offering a series of deals since the start of the month. However, it is making several promotions available exclusively for REDcard holders this week, who will also receive an additional 5% saving as part of the loyalty programme. The retailer is also locating team members across the store who can take payment from customers, enabling them to skip traditional checkouts.

Activating across the Amazon ecosystem

At Amazon, the aim is to bring-to-life its entire ecosystem across the promotional period. In addition to deep price discounts at, it will also be showcasing its devices at Amazon Pop-Up locations, offering savings on food orders through Amazon Restaurants and launching curated holiday gift guides. At Whole Foods Market, it is offering Prime member deals across turkeys and offering a $20 discount for new Prime Members. Prime member turkey pricing was one of the first deals introduced by the retailer last year following its acquisition by Amazon.

Source: IGD Research

Thanksgiving dinner meal solutions

At most grocer retailers, Thanksgiving meal essentials are the primary focus. While turkey pricing is used as a footfall driver, most retailers are also supporting with price-led initiatives for side dishes and desserts. Full Thanksgiving dinners are also available for delivery or pickup from several retailers. Websites are also used for providing recipe ideas and preparation guides. From Thanksgiving, these will transition into holiday-led campaigns, with a focus on baking, hosting and entertaining.

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Target is launching a new private label, Smartly, helping it to compete with discount and dollar store ranges in the US.

Most items cost less than $2

The Smartly range will initially consist of a range of everyday products across household and personal care categories. It has been developed to appeal to budget-conscious shoppers, with most products costing less than $2, and around 70% cheaper than comparable national brand products. The range will be available in-store and online, with further products being added next year. Commenting on the launch, Target’s chief merchandising officer, Mark Tritton, stated,

"Where we see white space and an opportunity to bring Target’s guests something differentiated, we’ll go for it. The introduction of Smartly to our owned brand portfolio is another example of how we are listening to consumers and bringing them differentiated solutions to make their lives easier.”

Source: Target

Innovating with range of new private labels and collaborations

Private label development is a priority for Target. Investing in this area is viewed as a key way to drive customer traffic and loyalty, while building important points of difference. By the end of this year, it plans to have completed the introduction of over 12 new private brands, impacting around $10bn of volume. Most of the recent new ranges have been focused on clothing and homewares; Smartly will be the first new brand in personal care and consumables for several years for Target. Recently it moved into the electronics space with the Heyday brand, while also bringing new digitally-native brands into its stores.

Taking on range of competitors including Amazon, Aldi, Dollar General and Brandless

With the Smartly range, Target has also aimed to bring its style credentials to life. The development team worked with master perfumers to develop unique fragrances, while elements of humour have also been incorporated into the product packaging. This range will help Target to better compete with online specialists such as Amazon and Brandless which have aimed to win at the intersection of value and style with their private labels. The continued growth of the discount and dollar store chains, which plan to add several thousand stores over the next five years, will also be in Target’s sights with this new range.

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An essential summary of trading priorities, latest developments, and other key commercial insights for Target.
We look at the scale and scope of the US online channel, key trends shaping its development and the growth opportunity over the next five years.
Our analysts have visited over 750 stores, in more than 50 countries, during 2017/18. From these country and store visits, each analyst has submitted their nomination for the Store of the Year based on the store offering benefits for the shopper, what makes the store unique, where it fits into the retailer’s strategy and where it showcases new thinking.
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