Fast Five Shorts | Buy Or Sell: Target Cutting Its Production Lead Time - Omni Talk Retail

Summary

Omni Talk Retail Podcast Summary

Episode Title: Fast Five Shorts | Buy Or Sell: Target Cutting Its Production Lead Time

Release Date: January 23, 2025

In this episode of Omni Talk Retail, hosts Chris Walton and Anne Mezzenga delve into Target's recent announcement to significantly reduce its production lead time. The discussion features insights from industry analysts Rick Gomez, John, Kelly, and Chris, who weigh in on the potential implications of Target's strategic move.

Target's Strategic Move: Reducing Lead Time

The episode kicks off with Rick Gomez reporting on Target's bold initiative to cut its go-to-market timeframe from seven months to eight weeks. Referencing a statement made by Target's Chief Commercial Officer, Gomez emphasizes the company's aim to swiftly bring trending products to consumers. He quotes Gomez at [00:00]:

"Not everything is in eight weeks, but the things that are trending and that we're seeing that are going viral, that we want to be in market ahead of the competition, we've created an operating model that enables us to do that."

Expert Opinions: Skepticism Surrounding the Move

John's Concerns:

John begins his analysis at [00:56], expressing a cautious stance on Target's announcement. He outlines several operational concerns:

Inventory Management Issues: John highlights Target's historical struggles with excess inventory and markdowns. He warns that accelerating lead times might exacerbate these problems if the company misjudges trends, leading to unwanted inventory.

"If you choose the wrong thing, suddenly you've got a ton of like, quote, unquote trendy inventory that actually nobody wants." ([00:56])
Forecasting Challenges: Transitioning to an eight-week lead time may not inherently solve Target's forecasting inaccuracies, which have persisted over the longer seven-month cycle.
Competitive Benchmarking: John points out that even with the reduction, Target's eight-week lead time lags behind industry leaders like Zara, which operates on a two to four-week cycle.

"Eight weeks is still way behind the market leaders of like real quick turn. So Zara is two to two to four weeks." ([02:30])
Marginal Impact on Business Performance: He doubts that faster lead times will address Target's core issues, such as price constraints and brand storytelling, questioning the overall effectiveness of the strategy.

Kelly's Perspective:

Kelly builds on John's points, particularly focusing on margin implications:

Increased Costs: She speculates that Target might incur higher costs by sourcing trend-driven products quickly, potentially squeezing product margins.

"If they're not able to figure that mix out effectively, they could run the risk of buying a lot of more expensive product that they're trying to push for trend." ([04:22])
Inventory Risks: Similar to John, Kelly warns about the dangers of bloated and less profitable inventory if trends are misaligned with consumer demand.

Chris's Insights:

Chris offers a slightly different angle, suggesting that accelerated trend capture is a fundamental aspect of effective merchandising rather than a groundbreaking strategy. He implies that Target may be overemphasizing this move as a novel solution.

"I was like, isn't this just what you're supposed to do as a merchant? Like, capture the trends and figure out what makes sense for Target to invest in." ([05:24])

Concluding Remarks: Unified Skepticism

Rick Gomez synthesizes the discussion, aligning with the skepticism voiced by his colleagues. He suggests that Target's announcement might be more about public relations than substantive change, referring to it as "window dressing."

"I think it's code for pure window dressing at a large industry conference when you have nothing else substantive to talk about." ([07:00])

The consensus among the panelists is that while Target's initiative is ambitious, it may not address underlying operational challenges and could potentially strain margins without delivering significant improvements in business performance.

Final Takeaway

The Omni Talk Retail episode presents a critical examination of Target's strategy to reduce production lead times. Through expert analysis, the discussion underscores potential pitfalls such as inventory mismanagement, increased costs, and questionable returns on such a strategic shift. Listeners are left contemplating whether this move signifies genuine innovation or serves as a superficial maneuver in the competitive retail landscape.

Notable Quotes:

Rick Gomez [00:00]: "Not everything is in eight weeks, but the things that are trending and that we're seeing that are going viral, that we want to be in market ahead of the competition, we've created an operating model that enables us to do that."
John [00:56]: "If you choose the wrong thing, suddenly you've got a ton of like, quote, unquote trendy inventory that actually nobody wants."
Kelly [04:22]: "If they're not able to figure that mix out effectively, they could run the risk of buying a lot of more expensive product that they're trying to push for trend."
Chris [05:24]: "I was like, isn't this just what you're supposed to do as a merchant? Like, capture the trends and figure out what makes sense for Target to invest in."
Rick Gomez [07:00]: "I think it's code for pure window dressing at a large industry conference when you have nothing else substantive to talk about."

This comprehensive summary encapsulates the critical viewpoints and discussions from the episode, providing valuable insights for retail professionals and enthusiasts alike who seek to understand the potential ramifications of Target's latest strategy.

Transcript

Rick Gomez (0:00)

Target has said that it has cut its go to market timeframe from seven months to eight weeks, according to Retail Dive. Rick Gomez, the chief commercial officer at Target, told an audience last Monday at the National Retail Federation's Big show conference that Target has shortened its go to market cycle to eight weeks, down from 27 weeks for specific trending items so they can reach shoppers faster. Quote, not everything is in eight weeks, Gomez explained, but the things that are trending and that we're seeing that are going viral, that we want to be in market ahead of the competition, we've created an operating model that enables us to do that, end quote. John, we're going to go to you again on this one. Are you buying or selling? Target's announcement of cutting its product lead times from seven months to eight weeks. And what, if any, impact will it have on Target's overall business performance?

John (0:56)

Yeah, I mean, to answer the first question, I think I'm a hold right now because I'm not quite, to be honest, it's, it's, I don't know, it's kind of, it's, it feels like a very exciting announcement, right? We're going to do stuff in eight weeks and we cut it down from seven months. And like all those numbers sound great, but I'd have a couple of like, first of all, concerns about impacts this could have on Target operationally, right? So first thing is that historically, I mean, say historically, over the last number of years, Target have mentioned inventory issues a lot in earnings calls, right? That they've had too much inventory of the, the wrong items, they've gotten hit by markdowns, it's driving some of their underlying underperformance. I only see this exacerbating that issue, right? If you're, if you're changing and saying, hey, this is a big deal and we're going to go after it in eight weeks, but you choose the wrong thing, suddenly you've got a ton of like, quote, unquote trendy inventory that actually nobody wants, which is not probably going to solve Target's underlying issue. And if they currently have forecasting issues at a seven month lead time, I don't see how that's suddenly going to get better in an eight week lead time. So that's my first kind of operational concern I would have from a, from like kind of a merchandising ops perspective. The other thing I would say is like, I don't think that this gets at Target's underlying problem of underperformance, right? So we know that they're constrained on basically price. I mean is the big issue that the stick that's being used to beat Target all the time, having a trendy, I think bow that is one of the examples that they use. Having a trendy bow in time for holiday seasons is not going to change that. There's a little bit of maybe additional incremental sales you can gain, but I don't know if it's going to change it. The other thing is eight weeks I was trying to think through in the year right. Where eight weeks could actually be helpful for you on a trend. So if you see a holiday trend, it's probably going to come in maybe mid October to early November. You're already past the holidays at eight weeks. If you see a back to school trend, which I thought was maybe the closest I could get, you might see it in June and you hit stores in September. But we all know in real life, in retail, back to school is done by September. Right. You're into Halloween. So I don't see how this actually helps them from that perspective. And the final point I'd have is like eight weeks is still way behind the market leaders of like real quick turn. So Zara is two to two to four weeks. Right. And so that's kind of our benchmark. It's not the exact same model, but I still think it doesn't think it brings it quite there. So it's actually funny having started from a hold and then work my way through those three points, I'm probably on a not buying situation right now. I just don't see how it trains to their actual solves the problems. And I think that the thing that Target's always been known for is kind of storytelling, building a brand that tells a story that you can rely on, that's consistent that you know what you're going to get. Yes, there's some kind of trend on trend moments that they've had, but it's not their usp. So I, I think it sounds great, but I don't know what it's driving at to solve for for them.