Target Unveils a $7 Billion Fix for Its ‘Old and Tired’ Stores
Target (TGT) CEO Brian Cornell admits that a lot of his stores leave a lot to be desired.
The executive, trying to reassure Wall Street analysts at an annual meeting on Tuesday after the retailer announced a lower than expected 2017 profit forecast, said Target will spend $7 billion on improving its e-commerce and stores over the next three years. A good chunk of that will go to sprucing up many of its stores, as well launching new brands and cutting prices.
“Some buildings just don’t reflect the brand—we have some old, tired stores that haven’t been updated in years,” Cornell told the analysts. Target will remodel 100 stores this year and 250 next year and hit 600 by 2019. It currently has about 1,800 stores, many of which were opened decades ago.
Target spooked investors when it announced big profit-sapping investments in store upgrades, new stores, better e-commerce, and lower prices to better withstand its price war with Walmart: (WMT) the retailer forecast full-year earnings of $3.80-$4.20 per share from continuing operations, while analysts’ on average were expecting its profit to top $5.00, according to Thomson Reuters I/B/E/S.
Shares fell 13% Thursday morning, putting them on track for their worst day since 1998.
Cornell’s comments echo those of Walmart U.S. (WMT) CEO Greg Foran who two years ago said most of his stores were subpar and set about improving them, to much success as the Target rival has now reported nine quarters of growth.
At the same time, Target also announced it was aggressively expanding its network of urban, smaller format stores, which now number 32. Company executives said comparable sales at those stores were twice those of its regular big box locations in suburbs and said they would more than quadrupling that fleet by 2019.
Even as retailers like Macy’s (M) and J.C. Penney (JCP) are getting set to close more than 100 stores each, Cornell nonetheless said physical stores were crucial to Target’s turnaround, though traffic fell last year.
Part of the store investments will include continuing reconfiguring them so they facilitate e-commerce and are better set up for quicker inventory turnover so Target can adapt to trends more quickly, drop merchandise that is flopping and offer more products to cater to local tastes.
Target’s online sales were about 5% of total last year, nothing to write home about when 10% of retail sales are online, but a crucial area for the retailer if it is to pull off its latest turnaround attempt. And stores are key: some 1 million orders were shipped from stores in the two days following Cyber Monday in November.
Without giving specifics, Cornell did say that retailers had to offer better experiences in store, with better presentation.
At the same time as Target’s stock was getting slammed, Cornell did strike an optimistic note that the company could rebound as it has.
“Evolution is in our blood. And in every period of disruption, our company has always forged ahead in every era,” he said. But change in retail has never come as fast or furiously or claimed as many retailers in short order.