Tar­get is lat­est to fall vic­tim to Ama­zon

Re­tailer’s stock dives af­ter Q4 sales prove weaker than ex­pected

USA TODAY US Edition - - MONEY - Nathan Bomey, Charisse Jones and Anne-Mar­celle Ngabi­rano USA TO­DAY

Tar­get, which cul­ti­vated a fol­low­ing among fash­ion­istas who con­sid­ered them­selves thrifty yet fab­u­lous, plans to try to re­bound from lack­lus­ter sales by be­com­ing more dig­i­tally savvy.

The lat­est re­tail gi­ant to fall vic­tim to on­line gi­ant Ama­zon, Tar­get missed the mark on an­a­lysts’ earn­ings ex­pec­ta­tions Tues­day as it said its fourthquar­ter store sales were weaker than ex­pected. The chain pro­jected a slump through the rest of the year, send­ing its stock price plung­ing.

“Our fourth quar­ter re­sults re­flect the im­pact of rapidly chang­ing con­sumer be­hav­ior, which drove very strong dig­i­tal growth but un­ex­pected soft­ness in our stores,” Tar­get CEO Brian Cor­nell said in a state­ment.

The fourth quar­ter, which in­cludes the cru­cial hol­i­day shop­ping sea­son, saw Tar­get rev­enue fall 4.3% to $20.7 bil­lion, which in­cluded the phas­ing out of the com­pany’s phar­macy sales af­ter it sold that busi­ness to CVS. Net earn­ings fell 42.7% to $817 mil­lion, re­flect­ing earn­ings-per-share of $1.46. Those fig­ures trailed an­a­lyst ex­pec­ta­tions of $854 mil­lion and $1.51 a share.

The re­sults con­cerned in­vestors a week af­ter archri­val Wal­mart re­ported an en­cour­ag­ing fi­nan­cial per­for­mance. Tar­get shares fell 12.1% to close at $58.77.

The re­tailer said it is ac­cel­er­at­ing its tran­si­tion to dig­i­tal sales as it, along with Wal­mart, does bat­tle with on­line gi­ant Ama­zon. Cor­nell said 2018 will be a “year of in­vest­ment,” though a re­turn to growth won’t come un­til 2019.

The big-box chain also pledged new in­vest­ments and

new brands, changes in­dus­try watch­ers say are crit­i­cal to avoid be­ing sand­wiched be­tween heavy dis­coun­ters such as T.J. Maxx at one end and high-end ap­parel sellers such as J. Crew on the other.

“At the very low end are the very af­ford­able (re­tail) knock­offs of de­sign­ers and at the high end you have the spe­cial­iza­tion, and it’s hard for Tar­get to re­spond to both,” says Matt Sar­gent, se­nior vice pres­i­dent of re­tail for Frank N. Magid As­so­ciates. “Their re­sponse is smart to in­vest in pri­vate la­bels”

Tar­get al­ready has some of its own brands, in­clud­ing Cat & Jack, a pop­u­lar chil­dren’s brand. But Cor­nell said the com­pany would ac­cel­er­ate in­vest­ment in new brands ex­pected to gen­er­ate $10 bil­lion of the com­pany’s an­nual sales over the next two years.

Neil Saun­ders, man­ag­ing di­rec­tor of re­tail an­a­lyt­ics firm Global Data, said that while “unique brands should help to pro­vide dif­fer­en­ti­a­tion ... Tar­get al­ready has some strong (owned) brands which get lost in a sea of mer­chan­dise on the shop floor. Again, more rad­i­cal think­ing is needed in terms of how stores look and feel and how the mer­chan­dise is pre­sented to the cus­tomer.”

For the pe­riod ended Jan. 28, sales at stores open at least a year along with dig­i­tal of­fer­ings fell 1.5%, hit­ting the bot­tom of Tar­get’s pro­jected range. That in­cluded a 3.3% de­cline at phys­i­cal stores open at least a year.

Tar­get pre­dicted a “low-to-mid sin­gle digit de­cline” in first-quar­ter com­pa­ra­ble sales, as well as a “low-sin­gle digit de­cline” for the full year. Cor­nell said Tar­get is go­ing to try to get away from pro- mo­tional dis­counts and move back to con­sis­tently low prices.

For many shop­pers, Tar­get re­mains the fash­ion dar­ling that in­spired count­less trend watch­ers to dub it “Tar­jay” for be­ing both chic and af­ford­able. Martin Robi, who was brows­ing at a Tar­get in lower Man­hat­tan on Tues­day, said he doesn’t shop at the chain fre­quently, but “my friends still re­ally like it. It’s a good brand that’s clean and stylish.’’

Danielle Co­hen ap­pre­ci­ated Tar­get be­ing a one-stop shop for prod­ucts rang­ing from gro­ceries to pre­scrip­tions. “I don’t fo­cus on their clothes,’’ she said. “But it’s great to have a place I can buy food and find a phar­macy ... We buy a lot of our stuff on­line, but if I can’t wait two days for it to ship from Ama­zon, I’ll go to Tar­get.’’

Shop­per Keith Wil­liams, how­ever, al­luded to the com­pe­ti­tion Tar­get faces, not just from Ama­zon but from other big-box re­tail­ers. While his friends and fam­ily still love the chain, Wil­liams said “Wal­mart (has) them beat. Just on their sheer size and prices . . .I can’t get tires at Tar­get, but I can at Wal­mart.’’

“At the very low end are the very af­ford­able (re­tail) knock­offs of de­sign­ers and at the high end you have the spe­cial­iza­tion, and it’s hard for Tar­get to re­spond to both.” Matt Sar­gent, se­nior vice pres­i­dent of re­tail for Frank N. Magid As­so­ciates

TAR­GET

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