Target is latest to fall victim to Amazon
Retailer’s stock dives after Q4 sales prove weaker than expected
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