Target unveils new strategy as sales suffer

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Target unveils new strategy as sales suffer

02/28/2017

 After reporting fourth quarter sales and profit that were worse than expected ahead of a meeting with financial analysts Feb. 28, Target unveiled elements of a strategy Chairman and CEO Brian Cornell said is needed to better compete and gain market share amid rapidly changing consumer behaviors. Shifts in behavior caused the retailer’s fourth quarter same store sales to decline 1.5 percent and adjusted earnings per share to decline to $1.45 from $1.52, six cents worse than analysts’ estimates which already had been reduced after Target pre-announced week holiday sales in January.

 
“Our fourth quarter results reflect the impact of rapidly-changing consumer behavior, which drove very strong digital growth but unexpected softness in our stores,” Cornell said.;
 
Among the initiatives he said would position Target for long-term, sustainable growth in a new era in retail are accelerated investments in a smart network of physical and digital assets. For example, Target will spend $7 billion during the next three years expanding a network of smaller stores in urban areas, remodeling hundreds of stores, revamping its supply chain infrastructure to improve in stock and more seamlessly integrate the digital and physical experience.
 
"We're investing in our business with a long-term view of years and decades, not months and quarters. We putting digital first and evolving our stores, digital channels and supply chain to work together as a smart network that delivers on everything guests love about Target, including more than a dozen new brands we'll introduce over the next two years," Cornell said. "We're confident our strategy meets the challenges of today and will lead us well in the future."
 
The company plans to remodel 100 stores this year in additon to opening 30 smaller format stores that are described as the "Flex Format" because they are tailored to the local community. The stores are also said to be twice as productive as a conventional Target, with higher operating costs offsett by greaters sales per square foot. Within three years, 600 remodels are planned and by 2019 Target expects to be opening 40 Flex Format stores annually.
 
In addition, Cornell and other top executives presenting at the investor meeting, including COO John Mulligan and CFO Cathy Smith, described a competitive landscape filled with opportunity because of closures. In the short run, increased promotional efforts by wounded competitors who are retrenching will cause pressure, but longer term the company views the investments made this year as an opportunity to gain share.
 
One of the key to the market share growth strategy is an investment in price that return Target to its roots as more of an every day low price operator. The company had strayed from that approach in the aftermarth of a data breach during the 2014 holiday season when promotional efforts increased to retain customers.
 
Another key going forward is increased differentiation and an emphasis on propriety brands. The 12 new brands to be launched represent about $10 billion in annual volume.
 
“While the transition to this new model will present headwinds to our sales and profit performance in the short term, we are confident that these changes will best-position Target for continued success over the long term,” Cornell said.
 
 
 
 

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