In a presentation here for financial analysts, Target leaders outlined investments it plans to try to re-energize the chain. It will remodel about 600 of its 1,800 stores by 2019 and take action to make sure its prices are more competitive with those of key rivals, especially on household essentials.
And it will plow money into developing and marketing 12 new private-label brands, exclusive goods that the retailer hopes will help it stand out in a noisy shopping environment and attract more customers.
As investors pummeled the stock, sending it down about 12 percent in early afternoon trading, Target executives sought to reassure Wall Street that these and other expensive initiatives, such as bolstering its supply chain, are a bitter but necessary pill to swallow to gird the company for the retail environment of the future. Shoppers are spending more online, and when they do visit a store, they’re often looking for it to be an experience, rather than a mundane errand.
“To get where we want to go, we know we can’t fix it on short-term opportunity. Target is taking a long view,” Brian Cornell, Target’s chief executive officer, said in the presentation.
The company will undertake $7 billion in capital investments over the next three years, expenditures that are likely to weigh on its profitability.
Target laid out its plans as it reported disappointing earnings for the quarter that included the crucial holiday season. Comparable sales, a measure of sales online and at stores open more than a year, slipped 1.5 percent. And the big-box chain doesn’t see that improving much anytime soon: For the full year ahead, it expects a “low-single digit decline” on this metric.
To help turn the tide, Target stressed that it will be especially focused this year on delivering attractive prices, even if doing so eats at margins in the short term. Executives said they’ll be trying to move away from promotions, a tactic they came to rely on heavily in the wake of a massive data breach as they tried to win back consumers. Now, though, Target will try to get back to a model focused on everyday low prices, particularly on basics such as food and personal care items.
As part of its bid to lure millennial shoppers, the chain plans to move quickly to remodel its stores. Cornell noted in his remarks that, in many cases, Target stores are in buildings that “don’t match the brand” and haven’t been renovated in years. The refreshed outposts will have more space devoted to “visual storytelling” — in other words, to displays that show shoppers how to use several garments to put together an outfit, or that show how to use several decorative items to spruce up a living room. These stores will also be rethought with an eye toward the growing importance of e-commerce: More space will be allocated for “buy online, pick up in store” counters, and backrooms will be designed to efficiently fulfill these and other types of orders.
The company expects a sales lift of 2 to 4 percent at the stores where it implements these changes.
In addition to remodeling stores, Target will speed up its march into urban neighborhoods and college campuses, opening 30 of its small-format stores in these kinds of locations this year.
Meanwhile, its planned suite of new brands will be concentrated in its home and apparel departments, core categories that are relatively high-margin businesses and which already account for about one-third of Target’s business. Cornell told reporters after the presentation that he believes some of Target’s private lines are “tired” and that they aren’t exactly magnets for shoppers.
“We have a portfolio today with lots of labels. We have very few brands,” Cornell said.
Target’s revenue in the fourth quarter slipped 4.3 percent to $20.69 billion, a decline that in part reflects the sale of its pharmacy business to CVS. Profit fell nearly 43 percent, to $817 million.
Target rang up a strong 34 percent increase in online sales during the holiday season, and it managed to avoid the website slowdowns that hampered its performance on the previous Cyber Monday. And yet the retailer still has a long way to go in its efforts to make digital an important part of its sales base: Overall, in 2016, 95.6 percent of Target’s sales still came from bricks-and-mortar stores.
The company on Tuesday did not offer extensive plans for how it aims to steer its food business, a department that lately has been a challenging one. Cornell said that Target continues to work on improving its fresh offering, including by having produce delivered seven days a week instead of less frequently. One thing Target won’t be doing? Adding services such as a deli counter or bakery.
“We’re much more akin to a Trader Joe’s than we are to a Kroger,” Cornell said, and the company doesn’t plan to change that.