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How Target Is Breaking Away From the Retail Pack

Retail doldrums? Not at Target.

Target (TGT) on Wednesday released a set of first-quarter numbers that prove any retailer faltering now has no one to blame but itself. Continuing off the strong momentum of its holiday season, Target said comparable sales rose 4.8% in the quarter ended May 4, fueled in part by a digital sales surge of 42%. That easily beats the flagging numbers posted earlier this week by Kohl’s (down 3.4%), J.C. Penney (JCP) (down 5.5%), and even that of Walmart’s strong numbers (a 3.4% increase) reported last week.

How is Target doing it? By remodeling its stores, equipping them for e-commerce and order pick-up, while improving their presentation, and offering customers merchandise they want and can’t get elsewhere, most specifically from its own store brands. The discount chain’s efforts are helping it win market share from its many competitors that have proven unable to capitalize on the best consumer spending environment in years. The gains have not only been online: store visits were up 4.3%, showing Target’s symbiosis between stores and e-commerce where both avenues feed business to each other.

“What we’re seeing right now is the bifurcation of winners and losers,” Target CEO Brian Cornell told reporters on a media call, pointing to eight straight quarters of growth. It was only two years ago that Target gave Wall Street heartburn by announcing a $7 billion, multi-year plan to overhaul what were dated stores, ramp up its lagging e-commerce, and modernize its supply chain. But now, the sense that Target has figured out how to thrive in this new Amazon-led world—certainly compared to many other retailers—has led its shares to rise 9% after its results.

A key ingredient in its success has been the wild popularity of its new house brands, including A New Day for women’s clothing, Heyday for electronics accessories, Opalhouse for home decor, as well as designer collaborations such as its new line with Vineyard Vines. These hits have given shoppers reasons to choose Target over other chains. A couple of years ago, it only took children’s wear brand Cat & Jack a year to become a $2 billion brand. Meanwhile, Penney, once a must-visit destination for kids’ clothes, has withered.

Target’s first-quarter profit rose 11% to $795 million, or $1.53 a share, compared with $718 million, or $1.33 a share, for the same quarter a year ago. Total sales climbed 5.1% to $17.4 billion. In the second quarter, the discount chain forecast a low-to-mid-single-digit increase in comparable sales.

Cornell, nearing his fifth anniversary as CEO, said Target’s success has come from focusing on what it does best, rather than mimicking rivals. Indeed, in the last two years, as Walmart staged its own comeback, Target came in for some criticism for being behind on e-commerce and not having enough distinctive grocery offerings.

“We’re not trying to be like everyone else,” he told Wall Street analysts. “At Target, we perform best when we’re pursuing our own path, not when we’re chasing someone else.”