NEW YORK — As Target looks to build on improved store traffic and a holiday-season surge in digital sales, the big-box retailer said Wednesday that it plans to boost annual spending on technology and supply chain initiatives to as much as $2.5 billion a year by 2017, sharply higher than the $1.4 billion spent last year.
At a presentation to investors here Wednesday, executives outlined a major effort to transform Target’s logistics operations to speed delivery of online purchases while keeping store shelves better stocked. The plan involves looking at issues including big changes in how it will use its warehouses to fulfill online orders and seemingly small details such as ordering the optimal-sized packs of each product so they are easy for workers to unload on shelves.
“Over time, we’ve been adding stress and complexity to systems that frankly were built for another time,” said John Mulligan, Target’s chief operating officer.
Target expects its spending on capital expenditures such as these to increase to $1.8 billion in 2016, and then the company plans to further ratchet up spending in 2017 and beyond to between $2 billion and $2.5 billion a year.
Although those behind-the-scenes changes may not be especially visible to Target shoppers, some of the retailers’ other big bets for 2016 surely will: Target will be making an effort to improve its $18.5 billion grocery business, a category that chief executive Brian Cornell said has previously left guests “underwhelmed and disappointed.”
This year, Target will be working to improve its assortment of fresh grocery items, in particular. But Cornell told reporters Wednesday that executives are doing an item-by-item evaluation “from the grove to the shelf” on how to make sure customers see fresher food at Target.
“Turning this business around will be a multi-year effort, and it’s not going to be easy,” Cornell said.
Customers might also notice new investment in the kids’ department: Target recently launched Pillowfort, an exclusive brand of gender-neutral kids’ bedding and home goods. On Wednesday, Cornell said that a children’s apparel brand, Cat & Jack, is poised to launch during the back-to-school season and that the company expects the line to be a “multibillion-dollar brand.”
Target’s plans for this year are an extension of a strategy that Cornell outlined shortly after he took the helm of the company in 2014, one focusing on what the company calls “signature categories”: apparel, home, kids, baby and wellness. The rationale is that Target is not going to win customer loyalty on commodity items such as laundry detergent; it’s going to earn it in areas where it can offer something distinctive. (And then, Target hopes, you’ll save time by also stocking up on essentials.) The addition of new kids’ brands is a reflection of this mission.
Target’s focus on supply chain improvement has much in common with the priorities put forward recently by Walmart, which is also pushing to have better-stocked shelves and to figure out how to better leverage its stores to fulfill e-commerce orders. Both retailers are hoping their big spending on these strategies will help them catch up with Amazon.com, which continues to crush both big-box stores online. Earlier this week, Target announced that it has hired an executive from Amazon, Arthur Valdez, to serve as its chief supply chain and logistics officer, a clear sign of Target’s ambitions to take on the e-commerce giant more seriously. (Jeffrey P. Bezos, the chief executive of Amazon, owns The Washington Post).
Target said it will be investing in digital engagement in a host of ways this year, including in efforts to make its website more reliable. (Shoppers may remember its website struggled mightily last year to keep up with demand for its popular Lilly Pulitzer fashion collection.) And the retailer is testing adding “digital service advisers” to its stores who can help shoppers use Cartwheel, an app-based rewards program, and the Target website.
Target offered sales guidance for the year ahead, saying that total revenue would probably be 3 to 4 percent lower due to the sale of its pharmacy business to CVS Health. The retailer forecasts that its comparable sales, a measure of digital sales as well as sales at stores open more than a year, will grow 1.5 to 2.5 percent this year, and 3 percent or more in 2017 and beyond.
Target also said Thursday that it will soon launch a clothing and home goods design collaboration with Marimekko, a Finnish brand known for its bold, cheery patterns.