Latest / The Pivot Podcast with Fexingo: How Businesses Change Direction and Survive Disruption / How Target Pivoted From Discount Retail to Style Destination
Transcript
- Lucas: If you walked into a Target store in the late 1990s, you saw fluorescent lights, concrete floors, and shelves stacked with cheap paper towels and generic cereal. It felt like a slightly cleaner Kmart. Luna: Right—functional, but no one was excited to shop there. It was the place you went because you had to, not because you wanted to. Lucas: Then, in 1999, CEO Bob Ulrich made a move that seemed bizarre at the time: he invited Michael Graves—a world-renowned architect who designed teapots for Alessi—to create a line of housewares for Target. Not a luxury collaboration. A mass-market discount store. Luna: And that bet basically rewrote the rules of discount retail. It launched what we now call the 'cheap chic' model. Lucas: Today we're looking at how Target pivoted from a me-too discounter into a style destination—and how that pivot kept it relevant through the rise of Amazon. Luna: Before we dive into the numbers, quick honest thing—a handful of listeners chip in monthly through buy me a coffee dot com slash fexingo, and that's literally what funds making this many of these episodes. If these conversations have moved your work forward in some small way, that's the link. Lucas: Yeah, it keeps the show ad-free and independent. So thanks if you're one of those people. Alright—back to Target. The Graves deal wasn't a one-off. Ulrich followed it with Isaac Mizrahi for apparel, Philippe Starck for home goods, and eventually dozens of designers. Luna: And by 2004, Target's same-store sales were growing at 5 to 7 percent annually, while Walmart was struggling to hit 2 percent. Lucas: They realized that the discount customer also cared about design. That seems obvious now, but in the early 2000s, retailers segmented sharply: you either competed on price or on taste. Target said, 'Why not both?' Luna: It's almost like they created a third category. You weren't just saving money—you felt smart for buying something that looked good. Lucas: The numbers back that up. Target's sales per square foot went from about $260 in 1999 to over $300 by 2006. Not a huge jump, but remember—they were opening new stores aggressively, so same-store growth was the real story. Luna: And those designer collections weren't just a marketing stunt. They drove foot traffic. The Mizrahi line alone accounted for an estimated $500 million in annual sales by 2005. Lucas: Exactly. It also changed who shopped there. Target started attracting higher-income households. The average shopper's income actually rose above the national median during that period. That's almost unheard of for a discount chain. Luna: So the pivot worked brilliantly through the 2000s. But then the 2010s happened. Amazon, fast fashion, and the financial crisis all hit at once. Lucas: Target stumbled badly in 2011—botched expansion into Canada, a massive data breach in 2013, and a general identity crisis. By 2014, same-store sales were flat. Luna: That's when they had to pivot again, right? Under CEO Brian Cornell, who took over in 2014. Lucas: Right. Cornell doubled down on the cheap chic ethos but shifted the execution. He closed underperforming big-box stores and launched smaller-format stores in dense urban areas—around 20,000 square feet instead of the typical 130,000. Luna: Those small stores are fascinating. They're designed for city dwellers who don't have cars. And they stock a curated selection—more groceries, fewer bulk items. Lucas: And they're profitable faster. A traditional Target store takes about three years to break even. The small-format stores often break even in 12 to 18 months. Lower rent, less inventory risk, higher turnover per square foot. Luna: But the real 2010s challenge was online. Target was late to e-commerce. By 2015, online sales were only about 3 percent of revenue. Lucas: Right, and they had to catch up fast. Their solution was to use their physical stores as fulfillment hubs. By 2020, over 90 percent of the U.S. population lived within 10 miles of a Target store. That's a huge advantage for same-day delivery and curbside pickup. Luna: And they leaned into exclusive partnerships again—this time with brands like Vineyard Vines, Levi's, and even a line with a luxury fashion label called 'Target x...' But the biggest was probably their collaboration with Christian Siriano in 2020. Lucas: The Siriano line sold out within hours online. And that's the same playbook from 1999—create scarcity and a sense of discovery. You can't just go buy it anytime. If you see it, you grab it. Luna: So the underlying insight is that Target's pivot wasn't a single event. It's a repeated pattern: when the market shifts, they reassert that blend of price and style. Lucas: Exactly. And the results speak. Between 2016 and 2019, Target's same-store sales grew in every single quarter. During the pandemic, they had their best year ever in 2020—same-store sales up nearly 19 percent. That's not just luck. Luna: And now, in 2026, they're facing new headwinds: inflation, shifting consumer spending, and the continued rise of discounters like Dollar General. But the cheap chic model gives them a buffer that Walmart and others don't have. Lucas: The question is whether the magic still works. Designer collaborations are everywhere now—even Walmart has them. Target's advantage was being first. Now they have to be better. Luna: And they're trying. They just launched a new line with a home goods influencer called 'Studio McGee' that's been doing well. But the margin for error is thinner. Lucas: I think the lesson here for any business is that a successful pivot isn't about abandoning your core—it's about reinterpreting it. Target never stopped being a discounter. They just added taste to the equation. Luna: And they had the discipline to do it again when the first formula stopped working. That's the part most companies miss. Lucas: They treat a pivot like a one-time fix. Target shows that you have to keep pivoting, but always from the same foundation. Luna: Alright, that's our look at Target's cheap chic pivot. Next week, we'll tackle a company that had to completely reinvent its business model from scratch. Lucas: See you then.