Target acknowledged on Wednesday that it has a long way to go to nurse its troubled business back to health, as the big-box giant reported that traffic to its stores declined in the most recent quarter, as did sales at its stores open more than a year.
The retailer said it is focusing on a crucial problem: Even as it has made strides in departments such as home decor and kids’ clothing, it has not done a good enough job of convincing shoppers that it is a destination for low prices on everyday grocery and household items.
“We believe that consumer perception of value at Target has not reflected how low our out-the-door prices are,” Brian Cornell, Target’s chief executive, said on a conference call with investors.
The chain is investing in new marketing campaigns to try to change shoppers’ attitudes about this, but executives caution that they expect it will take time to show an effect.
Target’s stock jumped more than 2 percent on Wednesday, as the lackluster results didn’t turn out to be quite as bad as Wall Street expected. But Cornell was quick to point out that “we’re not doing any high-fives in the room today.”
That’s because the results were discouraging in a number of key ways: Important categories such as household essentials and apparel saw a drop in comparable sales. In addition to the decline in foot traffic, Target recorded a decrease in “basket size,” a measure of how much shoppers are spending each time they set foot in a store.
Still, despite the overall trouble in its apparel business, there were some noteworthy successes. Its designer collaboration with Victoria Beckham was one of the best-performing in the company’s history. And swimwear, an area where it already had a dominant market share, performed strongly. Executives said they got a tail wind in the swim business from the fact that one-time competitors exit that category. That perhaps includes Victoria’s Secret, which dropped its bathing suit line last year.
That market-share grab is a reminder that all the turmoil in the retail industry is creating fresh prospects for opportunistic competitors. Dick’s Sporting Goods, for example, is taking over dozens of the store locations that Sports Authority vacated last year amid a liquidation. J.C. Penney is moving deeper into the appliance business. Sears, after all, is closing stores, and H.H. Gregg has filed for bankruptcy and shuttered all its stores — leaving an opening in the marketplace.
Target’s revenue in the quarter was down 1.1 percent to $16 billion; profit jumped 8 percent to $681 million. Online sales were up 22 percent, a healthy year-over-year increase that was nonetheless slower than the 34 percent growth the retailer recorded in the previous quarter.
The retailer’s struggle comes as its biggest rival, Walmart, has enjoyed a long stretch of growth at stores open more than a year. We’ll find out Thursday if that streak has held steady when the world’s largest retailer reports its latest earnings.
Target has pledged to plow $7 billion over the next three years into strengthening its business by, among other things, improving its technology and supply chain and revamping its store fleet. The retailer is planning to open 100 of its small-format stores, which it hopes will help draw in urban consumers.
As part of that effort, the chain announced it is piloting a new service in its store in Manhattan’s Tribeca neighborhood: Customers who make in-store purchases there can opt for same-day home delivery of their goods. The idea is to cater to urban dwellers who are likely to be doing errands on foot, instead of by car.