Target’s Stock Gets Slammed After Announcing It Will Cut Prices
The turnaround at Target is proving to be short-lived.
The discount retailer on Tuesday reported its third straight quarter of comparable sales declines, as a 34% surge in its digital business was not enough to make up for shoppers’ exodus from its stores during the holiday season.
And Target (TGT) expects its struggles to persist this year while it figures out how to re-tool its business: For the full fiscal year that started on Feb. 1, Target expects a low-single digit decline in comparable sales, coming off a worse than expected 1.5% drop during the fourth quarter. (In contrast, Walmart U.S. (WMT) last week reported its comparable sales were up 1.8% during the same period.)
Target’s stock was down around 15% in early trading, Tuesday.
Some of the initiatives that Target will disclose in detail at its annual meeting with Wall Street analysts later on Tuesday include launching in the next two years 12 new house brands it thinks can eventually garner $10 billion in annual sales, and, perhaps more crucially, lowering its prices on many goods so as to be competitive in the price wars with Walmart and Amazon.com (AMZN).
Target CEO Brian Cornell last year conceded that Target had let itself be outdone on price by rivals by focusing too much on the “expect more” part of the mantra—i.e. having interesting merchandise—and not enough on the “pay less” side, a dangerous miscalculation for a discount retailer. Those days could be over, he suggested in a press release.
“We will invest in lower gross margins to ensure we are clearly and competitively priced every day,” Cornell said in a statement, recognizing a hit to 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.”
Under Brian Cornell, CEO since August 2014, Target has sought to return to form by focusing on expanding its chain of smaller urban stores, ditching underperforming business like its Canadian venture and its pharmacies, and rejuvenating its private label brands, all while cutting costs and improving prosaic things like in-stock levels in stores. And for a while it worked.
But in addition to the problems that have struck retailers like Macy’s (M) as many failed to give shoppers a compelling reason to come to stores, Target has stumbled on a number of key issues.
It has failed to reinvent its grocery, an initiative expected to improve shopper traffic and help it fight a resurgent Walmart (WMT). The handover of its pharmacies to CVS Health last year did not go smoothly either. And it still grapples with supply chain issues. What’s more, it has seen a large number of executives leave.