NEW YORK — Target Corp. vowed to update hundreds of stores and make other investments in its business after it delivered a disappointing 2016 in terms of sales and earnings.
The Minneapolis-based company pledged to spend $7 billion over the next three years to remodel more than 600 of its 1,800 stores, accelerate the expansion of small-format stores, upgrade online operations and introduce new brands.
Target chief executive officer Brian Cornell acknowledged that many Target stores are “old and tired” and in need of an upgrade. Cornell, chief operating officer John Mulligan and chief financial officer Cathy Smith shared an overview of Target’s capital spending plans during the retailer’s annual meeting with the financial community at the end of February. The $7 billion allocation over three years represents a roughly 14% increase over Target’s typical capital spending budget of about $2 billion a year. The increase is being undertaken to accelerate sales growth, gain market share and help the retailer adapt to shoppers’ rapidly changing preferences, company officials said.
“We’re investing in our business with a long-term view of years and decades, not months and quarters,” Cornell said. “We’re 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.
“We’re confident our strategy meets the challenges of today and will lead us well into the future.”
Cornell said he hasn’t seen as many troubled retailers since the recession nearly a decade ago. By boosting capital spending today, Target executives expect to make market share gains in the future.
Target’s digital sales doubled over the past three years, and company executives said they intend to increase the speed, stability, performance and capacity of the digital infrastructure. Later this year, for example, Target plans to combine its Cartwheel savings app with the company’s flagship Target app to offer users “one simple shopping solution.”
The company also plans to treat its stores as local distribution hubs, housing products that will be sent directly to online shoppers’ homes or be picked up at stores by them. All of its stores will have ship-from-store capabilities by 2019, the company said. And Target intends to roll out new technology in June allowing sales associates to help customers locate apparel in their size in the retailer’s inventory, take payments on a mobile point-of-sale system and arrange delivery — all from the sales floor. The addition of such capabilities will be part of the store-remodeling effort.
Target said it will open 30 small-format stores this year, doubling its presence in dense urban markets and near college campuses. By 2019 the retailer will operate more than 130 small-format stores. Target currently has 32 of these stores, which are tailored to their communities and post twice the sales productivity of larger stores.
Cornell told investors that Target’s grocery business is not intended as a full-service grocer and instead competes more in the convenience area with self-serve items.
The company also announced the launch or relaunch of a dozen homegrown brands, hoping to add $10 billion in sales in the next two years. It noted that its Cat & Jack children’s clothing brand is on track to generate $1 billion in sales in its first year.
Finally, the retailer has vowed to focus on having more competitive everyday prices across its entire assortment instead of relying on promotions to drive sales. Target wants to return to more consistent low prices on essentials to deepen loyalty among shoppers.
“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 invests in its online business and lowers prices.
“Over the years, we’ve piled on the promotions. Now we’ll get back to our increasing focus on offering competitive prices across our entire assortment every day,” the company said on its Bullseye View blog. “Our investment in our operating profits will help us pass along the savings to our guests, but bigger picture: More guests will rest easy knowing that Target isn’t just a great place to shop, it’s a great place to shop the best prices.”