The Compound and Friends - Jeff Macke on the History and Future of Target (with Josh)

Starting point is 00:00:00 Hey, so I'm on with my friend Jeff Mackey, who is an investor. You probably are aware of him in some way, shape, or form if you consume any kind of financial media. Jeff's been around a long time, and he knows Target better than probably anyone. And today's an interesting anniversary for Target. Jeff, what happened today, I think in 1962? Fifty-seven years ago today, Josh Brown, Target, an apple in George Dayton's eye, was founded outside in suburban Minneapolis in Minnesota, the heartland. So Dayton Hudson was the department store that Target was kind of incubated within? Right on. And so Dayton's

Starting point is 00:00:43 department stores was kind of one of those old school, really huge, elaborate Minneapolis department stores. And they incubated Target. Target was started at the same time as Kmart and Walmart. All three of the same exact year. Discount retail just exploded on the scene about 60 years ago. Wow. I didn't know that they were all they all came along at the same time. They came along with the highway system. And Sam Walton, of course, is an American legend. Kresge, Kmart, is the guy that no one talks about anymore. And he was kind of favored to sort of take over the entire space. And they were all gunning for Sears because Sears was outmoded. Sears had those tiny boxes and the boomers were happening. So the suburbs were getting big and these guys just came with like a wave with big discount stores, giving rich people bargains. That's what my old man would say, because that was his job to find the target space. And he said, you know, rich people like deals too.

Starting point is 00:01:36 Yes. I'm going to get into that in one second. Why do you think, but why do you think they all had the same idea at the same time? Was it a coincidence? No, it was every, every generation or so you get another wave of distribution and retail and american fortunes are made and in this case it was just people moving out to the suburbs and and folks just making suburban homes so you think about your consumption all of a sudden you need a lawnmower you need a garage door opener you know all that crap that you wouldn't need in the city because we became a commuter nation and sam walton the daytons and kresge all went after with kmarts uh walmart and target so the stores followed where the the demographics

Starting point is 00:02:17 were going yeah and absolutely and target built if you to this day if you drive around major metropolitan areas in america you can see the target right off the freeway on your way to the suburbs. And you go a little bit farther outside of town, and you run into the Walmart. And as my old man would delight in saying, if you get off the on-ramp, drive about six blocks behind the used car dealership, you can find the K-Marks. dealership you can find the k marks so tell me all right so tell us about uh your your dad's connection to all this because he was kind of a legend um in in the retailing industry and um so that the story of target would not be the story of target without him they he came along at the right time and so he was a drake football kind of guy. And, and so to him, Minneapolis was the big city. Dayton's was just this tiny little department store with big ambitions. And so

Starting point is 00:03:10 they just kind of hitched him up and it was the only job my dad ever had. He went to work there in 1961. He was running Target by about 74, but Target was really, you know, it's any success story as a million fathers and target doesn't get enough credit for the amount of stuff that came out of there just as ideas in terms of like what on a store like the racetrack you walk into a target they all look the same that's not an accident they came up with planograms and man my old man would take a planogram out like a the marshall plan in terms of a military inspector and if you were off one, every target aisle has to be three carts wide. Not four, because that's a waste of space.

Starting point is 00:03:48 Two and a half, and you got people running into each other. Three, three carts wide. Do they still go by that today? Oh, absolutely. I can walk into a target and I can tell you, I can yell at a store manager in a way that would just make him cry personally, because you can just feel that the targets

Starting point is 00:04:03 are supposed to be run a certain way. It's all about adjacencies and it's all about the way you float. 90% of the people turn to the right when they walk into a target. So it's all set up so that you walk around the racetrack to your right, you pick up your stuff, you finish with health and beauty, and you stand in line. What do you think about the new guy? The stock price has been up since he took over, I guess, three years ago. What's his name? Cornell. Cornell. I think he's really good. I think he's really good. You know, the question with Target was going to be kind of first, it was whether or not Amazon would just take him out. And that's kind of died a little bit. And then it was just going to be whether or not they could become an omni-channel retailer. And discount, that's huge. You got to be everywhere. And

Starting point is 00:04:44 everyone thinks, oh, well, that's Amazon. Well, not really, because Amazon doesn't have stores. Target has a quarter of a trillion square feet of store. When they announced the takeover of Whole Foods, Amazon added more in market cap than what the acquisition would have cost them. But something tells me that Target, being way bigger, might not get the same reaction. What do you think? I don't think it would, not for Amazon, but I think it's the play they need because that real estate is huge. If you think about a Target store, they're all on flat land out in the middle of the suburbs. They're distribution centers. Whether you're shopping there, you're driving up to go inside the store

Starting point is 00:05:31 or you're picking up goods or they're sending trucks to stores in the neighborhood. Amazon doesn't have that infrastructure. It's a quarter of a trillion square feet. Amazon can't just go buy that somehow and they can't make little blimps and all that stuff. That's adorable and it looks cute in an artist mock-up but you got a lot of 1800 target stores 135 000 square feet each i think amazon needs something like that kohl's isn't going to be the answer so long term it's a

Starting point is 00:05:57 much better play for amazon i think it'd be neutral for the stock short term but i'd buy it i'd be more interested now and i own amazon and target. Okay. So what do you think would happen? What do you think, like, let's say Amazon never gets around to doing that deal or for whatever reason they've looked at it and they don't want to do it. Will Target under the leadership of Cornell be able to like do one day shipping, which is what Amazon's talking about, all of the advantages they have with the real estate, is that going to be enough to fund the kind of technology that consumers seem to be demanding? Yeah, because they've already got it there. So you have 2,000 stores. That sounds kind of overwhelming to think about it, but they're less than 10 minutes from 90% of the

Starting point is 00:06:42 American population. What, target target stores are, there's a that's amazing. That's amazing. Absolutely stunning stat. And you think about the size of those stores. You can't replicate that just by stuffing stuff into kind of a shipping channel. What Amazon would presume to have be the alternative to that is basically this virtual channel that just contains, you know,800 Target stores worth of product that's going out on any day. There's no way. Omnichannel means you got to ship it every way.

Starting point is 00:07:11 So Amazon and Walmart or Amazon and what Walmart and Target are doing are snipping away at Amazon's lead online and they have physical presence that Amazon doesn't. And so let me ask you about Walmart. So they bought Jet.com. It seems like that kind of gave them their mojo back a little bit. And Walmart has been legendary in terms of its logistical prowess. And then it seems like they took a nap for 20 years. But now, just looking at the stock price and the way they talk about Omnichannel, it seems like they're wide awake.

Starting point is 00:07:47 Like that stock has run a lot too. Do you feel like Walmart is like really taking the fight to Amazon or are they just improving a little bit? Like what's really happening there? They're improving hugely, hugely. And I do nothing but invest in this space. That is literally what I do with all my money. And that's why I'm asking you, you know, I've got a dog and a bike and my dad used to work at Target. Target doesn't write me any checks. So I've been happy to short them and long them. And now just strategically, Target and Walmart are finally sort of coming around to

Starting point is 00:08:23 the notion that it's not going to be a separate thing. It's not going to be Target.com or Walmart.com. It's just Target. One experience. It's one experience. It's one experience. And you know what? Target's getting the best satisfaction.

Starting point is 00:08:36 I mean, like bonkers Apple Store fanboy type of customer feedback. And that's driving up what people like because they hate it when you pick their produce for them. Nobody wants a grape that's sour that someone else picked. So if you actually let them order in advance, throw all their heavy stuff in the trunk of their car, they park, and they go pick the produce. Customers love that. I'm into it. And I just like, I'm a shareholder of Amazon, full disclosure, but I just like the idea that there is competition because I think that it's scary if one company ends up becoming 40 percent of every retail dollar.

Starting point is 00:09:14 Like I don't think anyone wants to see that. And it's not going to happen. think about if you look at kind of how amazon did with their physical stores and how they've done with whole foods they get an incredible amount of ink for doing stuff like running promotions in a grocery store which jeff we gotta we gotta leave it we gotta leave we gotta leave it there thanks for coming on the mini pod my man

The Compound and Friends - Jeff Macke on the History and Future of Target (with Josh)

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