Target pledges to reinvest in business
NEW YORK - Target, stung by the migration of its customers elsewhere, pledged Tuesday to spruce up some “tired” stores and make other investments in its business after delivering weak quarterly results and an outlook far below what analysts were expecting.
The retailer’s profit for the quarter that includes the holiday season fell 43 percent, with strong online sales failing to offset weaker business at its stores. Target’s stock tumbled more than 12 percent, and other retailers dipped as well.
Target said it will spend $7 billion over the next three years to remodel more than 600 of its 1,800 stores, speed up its expansion of small-format stores, bolster its online operations, and launch new brands. The company usually spends about $2 billion a year on such capital investments.
CEO Brian Cornell acknowledged that many of Target’s stores are “old and tired” and haven’t been updated in years.
The company also plans to treat its stores as local distribution hubs — using the backrooms not just to store merchandise until it moves to the sales floor, but also to house products that will be sent directly to online shoppers’ homes or be picked up at stores by them. Target is now using about 1,000 stores to ship directly to customers, as it and other retailers try to match Amazon’s two-day free deliveries for Prime customers.
Executives said the investments would help Target regain its foothold in a market where shoppers are moving online more and more. Target said it expects profits to start growing again in 2019, but wouldn’t be more specific.
“Our industry is in the midst of a seismic shift,” said Cornell, noting that Target would take a hit of $1 billion to its profit margins this year as it bolsters its online business and lowers prices to be more competitive.
Cornell said Target wants to return to more consistent low prices on essentials to deepen loyalty among shoppers, a shift from the temporary discounts it had been promoting. That might look like Target is stealing a page from WalMart’s playbook. But Cornell said Target’s focusing on delivering more than price, such as with exclusive brands and store experience.
All traditional retailers have struggled as Amazon and other online retailers draw shoppers away. Under Cornell, Target had been cutting costs, testing smaller formats, and expanding online services. But Cornell told investors those efforts weren’t enough, and Target has seen three straight quarters of declines for a key revenue measure and declining customer counts.
In contrast, Wal-Mart Stores Inc. posted another quarter of higher customer traffic and same-store sales as its efforts to merge its online services with its vast number of stores have clicked. Back in 2015, Wal-Mart had warned that stepped-up investments in stores and in its employees would hurt profits. But those investments eventually paid off as Wal-Mart has been able to revive traffic and sales at its stores, and its re-emphasis on low prices has also helped to attract shoppers.