Founded in 1902, Target has strategically won the nation’s heart following its introduction of upscale discount selling, becoming the 8th largest retailer in the U.S.
As Target strives to outbid its prime competitors Walmart, Costco, and increasingly Amazon, we check out the critical competitive advantages that have propelled Target’s success.
If you’d like to know the 9 competitive advantages behind Target’s success, keep on reading!
Target’s 9 Competitive Advantages
1. Extensive Nationwide Presence
Target has established an extensive network of more than 1,800 stores situated in every one of America’s 50 states. Coincidentally, 75% of Americans live within 10 miles of a Target store. Instantly it gains an advantage over Amazon who solely relies on eCommerce.
Nevertheless, Target has dedicated much time and effort to optimizing its own eCommerce platforms, assisted by 44 distribution centers operating across the nation.
Not only do distribution centers support stores by maintaining a healthy inventory, but they fulfill the needs of digital shoppers. At present, Target’s delivery reaches every corner of the U.S. Therefore; customers can now enjoy Target from the comfort of their own home.
An efficient network of stores and distribution centers has positively impacted customer reach and, as a result, yearly profits. In 2019, Target’s comparable sales grew by a modest 3.4% due to a 2.7% increase in online traffic. Target’s operating income grew by an impressive 13.3% in 2019, reaching $4.7 billion.
Note that Walmart equally maintains an overwhelming nationwide presence generating profitable income. However, Target locations are far more sparse, leaving them with more room to expand strategically.
2. Target’s Loyal Customer Base
Target has been a prominent figure in America’s retail sphere for over one hundred years. The company combined quality and affordability with the tagline ‘Expect More. Pay Less’, which won the hearts of American shoppers. To this day, Target has stayed true to its remit and is committed to providing an enjoyable shopping experience for every customer.
It’s moderately common for customers to prefer Target stores compared to Walmart’s due to overall cleanliness and organization. The quality of Target’s products is far more in touch with current fashion or homeware trends.
The preferable layout of Target helps customers locate what they need efficiently, shelves are stocked sufficiently, and free from tatty of broken goods. Ungodly fluorescent lighting that illuminates the aisles appears dimmer in Walmart, spoiling the store’s overall aesthetic. Therefore, portraying Target’s merchandise in a costlier light.
Additionally, Target launched its own loyalty program during 2019 without pushing the customer into a membership scheme. The Circle Card allows customers to earn 1% rewards with every Target purchase alongside birthday treats and exclusive sales.
Furthermore, Target puts back into the community by investing 5% of its total profits into its local communities.
The reality is, Target holds a discount store status; however, the company goes against the grain, aiming to provide its customers with a higher-end shopping experience that encourages them to return.
3. Small Stores, Busy Locations
One of Target’s primary sources of competitive advantage is its operation of small-scale stores strategically placed in busy locations.
Spotting a niche in the discount store market, Target has significantly slimmed down stores to almost a third of the original size to suit their ever-modernizing business model. Stores are established in densely populated areas such as commercial districts, college regions, and city blocks.
You can expect to find Target stores in major cities such as Los Angeles and New York within relatively small proximities to one another. As a result, Target attracts more urbanized clientele consisting of affluent millennials, students, and city workers who already enter the shop willing to pay higher sums.
The small store’s busy location puts Target at an advantage over Walmart and Costco, which generally operate 180,000 square supercenters or warehouse layouts in more rural regions.
Target stocks small formatted stores with merchandise that meets the community’s demand, from school supplies in university areas to baby garments in residential towns.
Furthermore, Target integrates the needs of online shoppers by sealing physical and digital parts of the business model together. Customers can now pick up an online order during their lunch break or after work at a central Target location or even receive same-day delivery!
4. Target’s Competitive Pricing
When comparing the prices of general merchandise between Target, Amazon, and Walmart, you’ll hardly see a difference. However, Target is known to pump the prices up in wealthier areas, particularly when shopping online.
Target has maintained a happy medium of offering discount prices yet charging a couple of dollars more than Walmart due to a more diverse demographic and strategic philosophy. CEO Gregg Steinhafel claims Target will aim to sell products at just a penny higher than its chief competitor, Walmart.
As we look at the outcome, Target has generated better gross margins of 31.15%, in contrast to Walmart’s 25.35%. In the long run, Target is slightly more profitable than Walmart using its competitive pricing advantage.
Using an economy pricing model, Target minimizes its overhead. Instead of offering a vast assortment of products like Amazon or Walmart, Target sells a limited range of private and company-owned labels to manage prices and generate higher revenues.
Additionally, Target has one of the best price matching policies on the market. It’ll price match pretty much any item in its stores if you can provide evidence of a lower price on an identical (color, model, brand, size, and quantity) product. Customers can even price match merchandise within 14 days of purchase.
5. Increasing In-Store Fulfillment
It’s no secret that Target is putting tremendous efforts into consistently upgrading its eCommerce platforms. The aim is to maintain an edge over online competitor Amazon or, more importantly, direct chain competitor Walmart. Target’s solution is to transform its brick-and-mortar store into multipurpose sites that maximize store and digital sales.
Approximately 25% (460) of Target’s stores have the capacity to facilitate online order fulfillment. Target’s amenities to ship online orders to customers’ homes across the nation within just two days. The company maintains this competitive advantage to keep up with eCommerce competitors.
Moreover, transforming stores into mini fulfillment centers means that inventory levels are continually replenished, benefitting the shop floor, which, in turn, improves customer experience.
Target works with UPS who collects and distributes orders after being packed by cross-trained staff members.
Furthermore, Target adapts to modern demand, which sees customers become increasingly impatient waiting for their online orders. Fulfillment capabilities facilitate same-day delivery, contributing to a $15 billion increase by the end of 2020. From a perspective on growth, that figure is more significant than Target’s collective growth over the previous 11 years!
6. Broad Selection Of Private Label And Exclusive Brands
When you shop at Target, you’ll have access to 48 unique brands that are either privately owned or exclusive to the company. When comparing stock levels, Target offers a significantly lower breadth of merchandise than Walmart or Costco; however, they put more effort into specific departments offering higher-quality goods.
Target is most known for the sale of household essentials, home decor, groceries (including beverages, dry perishables, fresh, and frozen foods), electronics, appliances, apparel, and baby products (such as toys) of which are sold under a Target-owned brand.
Utilizing private labels and exclusive brands is one of Target’s most effective competitive advantages, continuing to a rise in-store sales by 4.5% (that’s 3.6% more than analysts forecasted). Unique brands generate more appealing margins than big third-party retail brands.
National brands generate significant sales. Therefore, Target has focussed much of its efforts on building brands that gain recognition from its expansive customer base. The driver behind private labels is the cheaper price point and differentiation from competitors.
Target is also known to partner with designers and known brands to launch products exclusively found at target. While this feeds customers the brands they already love, it also raises Target’s profile.
7. Employee Satisfaction At The Heart Of Target
Target understands that a strong employee unit is a key to every business’ success, formulating an organizational culture at the Corporation’s core.
Employee-friendly organizations often excel while positively influencing the overall customer experience. While Target boosts its starting wage to $15 an hour, Walmart remains at $11 hourly. According to Glassdoor, 59% of Target employees rated their positive business outlook 12% greater than Walmart employees rated theirs.
We recognize Target’s long list of employee benefits put in place to maximize employee satisfaction: Target Flex, buying or selling extra holidays, sick pay, childcare vouchers, employee discounts at a wide range of retailers, private medical insurance, free fruit, and subsidized gym memberships.
Human resource management is another key competitive advantage used by Target; really honing in on employee management to elevate company performance and maximize employee satisfaction.
Target’s HR monitors these four areas; organizational culture, staffing, employee development, and employee retention. The company views employees are holders of the company, explicitly recruiting employees that seek progression.
8. Strong Marketing Campaigns
Operating a solid marketing campaign is an essential source of competitive advantage for any retail brand. In a single year (2019), Target invested an estimation of $1.65 billion in advertising, utilizing both digital and traditional promotional methods. Additionally, its movement into populated areas depicts the store as better quality earning organic attention.
In fact, Target has undergone at least 3 makeovers in the last three years, perfecting its logo and color scheme. Now, when a customer is strolling down the street and catches a glimpse of red, they’ll instantly associate the bold color with Target.
Not only does the red differentiate Target from its competitors, but it adds character, modernity, and flair.
Target is exceptionally skilled at wielding new marketing means using major social media platforms such as Twitter to post announcements linking customers to limited collaborative collections.
Instagram is increasingly used by retailers and bloggers, helping them decide what to purchase before heading to a store or even buying straight from the app! Target has made the most of Instagram’s eCommerce resources by linking customers straight to the goods they were looking for. It also works wonders for general or seasonal campaigns.
9. Enticing Concessions In-Store
Target has embarked on a new approach to elevating their stores with a ‘shop-in-shop’ concept where the company teams up with big brands such as Disney, Ulta Beauty, and Apple. Not only does this help Target compete with the likes of Amazon, but it changes consumer perception of discount brick and mortar stores.
Whether you’re shopping between work breaks or popping in on your way to college, many customers are overjoyed when they discover Starbucks concessions at Target stores. Branded concessions are a competitive advantage that isn’t matched by retail chains, Wamart, Costco, or Amazon (who operates online).
Starbucks works wonders for Target’s brand equity, optimizing their reputation on the market, and potentially attracting a wider breadth of customers who will then stumble across Target’s own brands.
You may also find prestigious Apple mini-stores working inside Target stores which, again, instantly attracts higher-paying customers.
To learn more, you can see our similar posts on competitive advantages for Walmart, Costco, and IKEA.
Target’s competitive advantage is primarily its ability to form and maintain a loyal customer base from what we’ve learned. Promoting a positive customer experience is found at the core of Target’s business model made possible by dedication to employee satisfaction with progressive roles.
Its small-scale stores covered in distinctive red selling privately labeled and exclusive brands truly sets Target apart from its competitors. Additionally, Target has transformed stores into multipurpose centers that fulfill consumer needs physically and digitally.