Inside the Design Lab That's Getting Target's Tar-Zhay Back

On the executive floor of Target's Minneapolis headquarters, near the kitchen and common area, stands a showroom stocked with back-to-college linens, plaid throws, oversized candy canes, furniture, stretch denim, and much, much more. As employees browse the display of items the retailer thinks will fly off store shelves, Target's product design and development team artfully primps and styles the space, located on the 26th floor. They're readying it for a walk-through with CEO Brian Cornell, who was caught peeking at the merchandise earlier in the week. "[Brian] is incredibly passionate about product," said Julie Guggemos, senior VP-product design and development. "He is naturally curious. He's always walking the floor." The showroom with new products flowing through every six weeks is one of a number of ways the CEO, who joined last August, is keeping everyone from top brass to marketing and public relations clued-in to the new direction of the brand. Over the past year, Mr. Cornell has been trying to reenergize the retailer that once defined affordable chic with an instantly recognizable design aesthetic, but was caught off guard and derailed by the rapid growth of e-commerce. Same-store sales recovered after the recession with a 3% rise in 2011, and then lost ground. Last year, Target's same-store sales were up 1.3%. "They hit that wall," said David Schick, managing director at equity research group Stifel, referring to Target. "They were running out of U.S. growth and Target was behind in the e-commerce migration. They had to do a lot all at once: stop opening stores, enhance e-commerce and at the same time, reenergize merchandising." A big part of the ex-PepsiCo executive's turnaround plan is to move Target away from being all things to all people while it builds up its omnichannel offerings, and instead focus on four core areas where the brand can stand out: style, including home, apparel and other products; baby, encompassing clothes and gear; kids' clothes and toys; and wellness, a category that the chain is still defining, but covers things like organic food, health products and green cleaning supplies. During the second quarter of 2015, same-store sales for those four signature categories grew more than 7%, or three times its overall same-store sales growth of 2.4%, Mr. Cornell said on a conference call. "For a long time Target was, as a general retailer, pushing a lot of things forward," said Joshua Thomas, spokesman for Target. "Now we've taken a look and said, 'That's not sustainable and that's not really helping us move the needle, so let's think about what are those categories, those products that are most important to our guest and that, frankly, we can do better than anyone else.'" To do so, Target is freeing itself up to focus on lucrative areas with deals like its recent pact to turn over operations of its pharmacy counters and clinics to CVS Health. Mr. Cornell is also mixing up the leadership team that selects every item Target sells. The brand's longtime chief merchandising and supply chain officer stepped down last month and was recently followed by a merchandising executive who led a number of categories including grocery and health care. And the retailer is relying on a combination of national brands, exclusives like athletic brand C9 by Champion and Target's own brand portfolio to differentiate itself, while it invests more in e-commerce. "[Target] is looking for ways to differentiate and provide some great value -- great products at really nice price points," said Sean Naughton, senior research analyst at Piper Jaffray. "It's things that you can't find at other places." Exclusives, like Aldo's A+ collection and the Lilly Pulitzer line, help the discount chain attract fresh customers, while owned brands, like home brand Room Essentials and apparel line Merona, typically turn a higher profit than outside brands. Ten of Target's private-label brands each bring in more than $1 billion a year in sales, or 14% of the retailer's annual revenue. And Target thinks they can bring in more. It's doing so in part by leaning on its product design and development team, also known as PD&D, to reclaim trendy consumers and build products that align with shoppers' needs. The group fuels most of the retailer's owned brands and consults on exclusives, creating everything from picture frames to connected lamps that can be controlled by a cellphone. The team has expanded over the past decade alongside Target's collection of about 20 owned brands in categories like kids, apparel, home, pet, sporting goods, grocery and consumables. Target's PD&D labs, which build products for all areas except grocery, are equipped with 3-D prototyping machines and other tools that allow the department's designers and engineers to create products in-house. The team also develops cookware, utensils and tableware at an in-house test kitchen -- one of four test kitchens that are primarily used by Target's grocery department. They are staffed by 20 product-development scientists, food scientists and quality experts that support Target's food brands such as Archer Farms, Simply Balanced and Market Pantry, and share their kitchenware expertise with PD&D. A small team of designers and engineers, who worked primarily on Target's private-label apparel and kids brands, formed the PD&D department in the late 1990s as the group expanded to work on men's and women's wear. In 2003, the retailer debuted its own home line and the team continued to grow from there, because, said Ms. Guggemos, a 25-year Target veteran who began her career in merchandising and now leads PD&D, "if we developed products that are unique to Target that our guests loved and they can only buy them at Target, it would be a strategic advantage." In the early years, she said, "my role was translating the business strategy to the design team and also helping Target understand the value that designers could bring to the business, because it was all new. With that came more discipline around our products and understanding the guest and guest needs so that we can be very specific in how we develop products." It can be as basic as forks and spoons. In the fall of 2013, after supplying Yellow Brick Road Child Care in Plymouth, Minn., with utensils and plastic bowls to help the day care's 2-year-olds learn how to feed themselves, the team learned that Target's children's tableware was all wrong. The bowls moved around when the kids tried to eat from them and the flatware was too flat for their small hands to grip. The children were stabbing their peas with forks because they couldn't scoop them with spoons. "We were almost laughing because we were like, 'Oh my god, we are not helping the cause here,'" said Ms. Guggemos. "We can help make teaching kids how to eat with utensils easier by making some fundamental changes." The PD&D team sketched out children's hands and used them to design utensils that would be easier to hold. Using the 3-D machine, they turned those designs into technical sketches and then prototypes. Many, many versions later, they had a set of utensils that tiny hands could hold onto and scoop food into their mouths with. They also added adhesive to the bottom of the bowls so they would grip the table, and made them stackable. Bringing this type of practicality to products are PD&D's more than 500 full-time designers and engineers, which include 2-D designers, textile designers, industrial designers, electrical engineers and a literal rocket scientist—a former-NASA aerospace engineer. The diverse team, which boasts varying levels of experience, works together to understand style trends and build products. "Everything is done in collaboration," said Ms. Guggemos. "Every product category requires a specific skill set." An electrical engineer may pair with an industrial designer to build a lamp, Ms. Guggemos said. In apparel, a textile designer will develop a print and pattern alongside a fabric designer who chooses the fabric and a 2-D designer who designs the garment. Stephanie Grotta, a former landscape architect and an associate product design director at Target, works on the retailer's home brands as well as exclusives with national brands. "In landscape architecture school and in practice, you are taught to consider context, analyze it with a strong point of view and draw the greatest inspiration from it -- people, place, natural processes, man-made processes, history, socio-economic context, etc," said Ms. Grotta in an email. "Being able to understand the nuance of a situation or project and quickly understand which way to pivot design work has been incredibly beneficial to my work at Target." Ms. Grotta and the team work on hundreds of products each year -- designing apparel about nine months in advance and home products 11 months out. This requires some real-world experimentation. For example, the retailer tested its tableware at Solera, a now-defunct restaurant in downtown Minneapolis, to get feedback from the staff on how the plates held up in a busy environment with real customers. Within a month, the plates were scratched, so Target began working on a scratch-resistant glaze. Nearly two years later, the tableware is still under development, but it's expected to arrive in stores next summer and remain, scratchfree, in customers' kitchens for years to come. The retailer is also experimenting with connected products, a trend it jumped on a year and a half ago, Ms. Guggemos said. In the works: a baby-changing station that estimates the size of the diaper that's needed based on the weight of the baby, and triggers a reorder when the diaper storage compartment is running low. "There are a lot more exciting things to come along those lines," said Ms. Guggemos. And the team is willing to get down and dirty for the sake of the cause. Three years ago, five PD&D members landed in California for a sporting goods trade show and headed to a local Target. The designers and engineers prepared to camp like their customers might, and that meant shopping like they shop. They traversed the big-box chain searching for sleeping bags, toiletries, a four-to-six-person tent, stakes -- which were inexplicably far away -- and everything else they'd need for an outdoor adventure. They arrived at the campsite, about an hour outside of San Francisco, and began pitching a shelter that night. The group squinted at the instructions in the dark and used flashlights to identify the tent pieces. The trip to Half Moon Bay State Beach Park was later sullied by torrential rains that flooded the tent. The result was that within the year, Target completely overhauled its Embark brand gear and the way it sold camping supplies in stores. The tent was affixed with glow-in-the-dark ropes to improve visibility at night, and could now be assembled in two minutes. Target also extended the rain flap to keep water out. This year, the retailer partnered with crowdsourcing community Betterific during back-to-college to get ideas on how to improve life in a first apartment or dorm. Betterific members voted on the best product suggestions and Target brought them to life. Among the seven winners, currently on shelves, are bedsheets with pockets for a phone or notebook, and a shower caddy with extra drainage and a storage rack. Target also teamed with homeware design company Umbra to co-create merchandise with students at three design schools around the country. Over the past year, Ms. Guggemos has worked more closely with the marketing and public relations teams, recapping her most-loved items of the season, to highlight Target's new products with clever marketing and packaging that speaks to the merchandise's artisan details. In March, the marketer debuted one of Ms. Guggemos' favorites -- an Embark walking sleeping bag with arm and feet holes -- on "The Mindy Project." "It's really about building up that brand equity in their owned brands as much as they're doing with their partners," said Traci Gregorski, VP-marketing at research firm Market Track. The teams also work with Target's roster of agencies, including creative shop 72andSunny and media house Haworth, among others. Mr. Cornell recently spent two days in Los Angeles and San Francisco, searching for product ideas with Ms. Guggemos, where the duo shopped for home goods, browsed boutiques, visited up-and-coming designers and looked at textiles. "Trend trips" like these help bring the CEO off the 26th floor and closer to Target's products. It's the inspiration behind the products, how they were designed and how they are built that elevates Target's offerings, said Ms. Guggemos. "[Brian] wants those stories to be heard because he believes that our products have more value and meaning when we're able to share those stories," she said. But it still doesn't stop him from peeking.

Inside the Design Lab That's Getting Target's Tar-Zhay Back

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