Will Target’s $7 billion investment pay off in market share gains?
Yesterday financial report from Target tested the glass half full or empty analogy if you’re a stakeholder. The company reported same-store sales and profits were down in the fourth quarter and said it expects more of the same in 2017. Management also announced that Target would invest billions over the next several years to differentiate and gain market share.
Target’s shares fell 12 percent yesterday after the company reported that comparable store sales fell 1.5 percent in the fourth quarter despite the chain seeing traffic improve 0.2 percent. Digital sales, which increased 34 percent, were not enough to offset weak performance in the chain’s stores. The retailer said it expects to see a decline of comparable store sales in the low single digits this year.
Target CEO Brian Cornell said the company’s results were a reflection of a changing retail environment in which sales are shifting from stores to online. While maintaining that the company has made progress, he said Target now needs to speed up its response to market conditions.
“We will accelerate our investments in a smart network of physical and digital assets as well as our exclusive and differentiated assortment, including the launch of more than 12 new brands, representing more than $10 billion of our sales, over the next two years,” he said. “In addition, we will invest in lower gross margins to ensure we are clearly and competitively priced every day.”
Target plans to spend $7 billion over the next three years to invest in store upgrades and become more price competitive.
The retailer plans to remodel 600 units, roughly one-third of the chain’s total.
“We know some of our stores have gotten tired. They’ve gotten old,” said Mr. Cornell on CNBC’s “Power Lunch” show yesterday. “I’ve got stores that haven’t been remodeled in over a decade. We have to go back and bring the best of Target to those stores. When we do that, the guest responds.”
The chain plans to continue focusing on smaller boxes in urban markets going forward. Mr. Cornell said Target would double the number of small stores it operates in the next year.
- Target CEO: We’re confident in our new direction – CNBC
- Target’s $7 billion spending plan still leaves some question marks – CNBC
- Target Reports Fourth Quarter and Full-Year 2016 Earnings – Target Corporation
- Target Gets a Lesson That Low Prices Matter – The Wall Street Journal
- Target’s data breach gets uglier – RetailWire
DISCUSSION QUESTIONS: Which of the investments within Target’s $7 billion plan over the next three years are most likely to help the chain regain market share? How confident are you that Target has the right plan and team in place to achieve its goals?