C-SUITE

Target names new strategy and innovation chief

BY Marianne Wilson

Target Corp. has tapped a McKinsey & Company veteran to head up its innovation efforts.

The retailer appointed Minsok Pak as executive VP, chief strategy and innovation officer. He replaces Casey Carl, who left the company in May.

Pak, who will join the retailer on Sept. 11, will be responsible for Target’s enterprise strategy development and retail innovation with the goal of enhancing the shopper experience and accelerating growth. He will also oversee business development, including mergers, acquisitions, partnerships and joint venture initiatives.

Pak most recently served as senior VP, Lego Retail at The Lego Group. He was responsible for leading Lego's branded retail channel, including more than 250 stores and e-commerce sites across 24 markets.

Prior to Lego, Pak spent two decades with McKinsey & Company, where he held various leadership roles and worked with leading global retail and consumer companies. Additionally, Pak led McKinsey’s digital transformation group. Pak also served (on temporary transfer from McKinsey) as the global executive VP and chief strategy officer at LG Electronics.

"Minsok brings deep business acumen and proven leadership capabilities to Target," stated Target CEO Brian Cornell. "Throughout his career, he has counseled numerous companies and led through significant times of change. He brings strategic vision, an innovative spirit and an ability to address complex business challenges by capturing near-term opportunities and charting a course for the future,” said Cornell. “As we build an even better Target for tomorrow, we must plan purposefully to drive growth and continue instilling innovation in every part of our business. I am confident Minsok is the right leader to fill this critical role.”

Pak will report to Cornell, and serve as a member of Target’s Leadership Team.

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REAL ESTATE

Forget bricks vs. clicks, it’s all about distribution

BY Al Urbanski

Everything you know about the battle between online and physical retail is probably wrong, according to a report issued this week by CBRE.

As business analysts and retail pundits focus on store closings, they miss the fact that 58% of retail warehouse space was leased by brick-and-mortar retailers in 2015 and 2016. Only a third of such space was leased by pure-play Internet sellers.

“As the brick-and-mortar brands continue to do more online business, they can’t rely on the single distribution center anymore. They’re realizing that they need more, smaller warehouses that are closer to their consumers,” said Melina Cordero, CBRE’s head of retail research for the Americas.

In the report, “Is the e-pocalypse here?” CBRE points out that 90% of retail sales still take place in stores and that traditional brick-and-mortar retailers account for more than half of e-commerce receipts. When it comes to the so-called GAFO categories (general merchandise, apparel, furniture, and other), three-quarters of purchases took place in stores during first quarter 2017, according to U.S. Census Bureau statistics.

At the same time, the report points out, several brick-and-mortar mainstays are implementing successful omnichannel strategies. In Q1, Williams Sonoma did 51.8% of its business online, Restoration Hardware 44.8%, and J. Crew 37.7%.

“The number one thing that surprises people when they see this list is the fact that less than 10% of retail sales take place online, but the fact is that the apparel category is still very fragmented and big brands like this are still a small percentage of the whole,” Cordero said.

The bottom line, according to Cordero, is that retailers are shifting to the most efficient supply chains in order to survive. That, in some cases, even means stores serving as local fulfillment centers.

“One retailer told me that they’ve started having store associates receive local online orders and then package them and send them,” she said.


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FINANCE

Disappointing Q2 for Lowe’s; to boost store employee hours

BY HBSDealer Staff

It was another disappointing quarter for Lowe’s Cos., which on Wednesday reported lower-than-expected adjusted earnings and revenue and gave notice of slower growth in profit margin for the second half.

The home improvement company reported that its revenue rose 6.8% to $19.5 billion for the quarter ended Aug. 4, which was short of estimates. Same-store sales rose 4.5%, exceeding Street forecasts.

Lowe's reported net income of $1.4 billion compared to $1.2 billion a year ago. Adjusted earnings were $1.57 a share for the quarter, missing analysts' estimate of $1.62 a share.

“While our results were below our expectations in the first half of this year, the team remains focused on making the necessary investments to improve the customer experience and drive sales,” said Robert Niblock, CEO. "This includes amplifying our consumer messaging and incremental customer-facing hours in our stores which will put pressure on our operating margin. We believe this is the right strategy to more fully capitalize on strong traffic trends in what we believe is a supportive macroeconomic backdrop for home improvement."

Lowe's spokesperson Colleen Penhall told USA Today that the company planned to "add additional hours of store staffing during peak traffic times."

"To more fully capitalize on our strong traffic trends and ensure we are delivering an excellent customer experience, we are reinvesting in store hours at the customer service associate level," she stated.

Lowe’s, which operates 2,141 stores in North America, announced that it would add 25 home improvement and hardware stores this year.

Product categories that performed above average in the second quarter were appliances, lawn & garden, lumber & building materials, and rough plumbing & electrical. Paint, flooring, and seasonal & outdoor living were among the underperformers.

Shares of Lowe’s were down more than 6% in mid-day trading as the company missing both its top and bottom line numbers spooked investors.The news comes a week after Home Depot reported its highest quarterly revenue in company history.

To boost profits and play catch up to Depot, Lowe’s has been investing in its Pro business. It has also restructured parts of the company, including layoffs of more than 120 corporate tech workers this summer.

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