The goal is to invest $ 4 billion in accelerating new stores and remodeling, and expanding the ability to fulfill online orders
A person wearing a protective mask walks past a Target Corp. store on Thursday, February 11, 2021. in the Grossmont Center Mall in La Mesa, California, USA.
Bing Guan | Bloomberg | Getty Images
Target said Tuesday that it hopes to build on its recent growth by investing approximately $ 4 billion annually over the next few years to accelerate new stores, remodel existing ones, and improve its ability to quickly fulfill online orders .
However, investors and analysts were left without important information: an outlook for the year. The company declined to provide guidance, saying Covid-19 made it difficult to predict consumer spending.
Shares fell more than 6% on Tuesday afternoon, despite Target beating fourth-quarter earnings expectations and posting strong sales in January.
On a virtual investor day on Tuesday, Target CEO Brian Cornell argued that the retailer’s recent results were not a pandemic-induced slip, but rather the payoff of its long-term business strategy. He pointed to investments and decisions made over the past five years, such as the growing collection of private labels, partnerships with well-known national brands, and using the stores as hubs for fulfilling online orders.
“This achievement is no coincidence, but further proof that we have developed a business model that works as intended and puts Target in its own category,” said Cornell.
He told investors the ongoing uncertainty will not distract the company in the months ahead.
“I recognize the frustration that is not more specific, especially when it comes to sales, but I can guarantee you that our entire leadership team and every part of this organization is focused on maintaining and increasing market share no matter what.” We have to face variables, “said Cornell.
Investors aren’t just terrified of Target’s lack of leadership, said Brian Yarbrough, a retail analyst for Edward Jones. They are also concerned about the retailer’s warning that they are expecting lower margins this year. It will handle fixed costs like paying higher wages for employees and fulfilling a growing number of online orders – while potentially generating lower sales as the pandemic trends wear off. Target raised its minimum wage to $ 15 an hour this summer.
Target also expects further discounts on goods this year, of which it had little in 2020 due to high demand and lower inventory levels. That also hurts profitability, said Yarbrough.
New stores, distribution centers
Target’s next steps include opening 30 to 40 new stores each year. Some of these stores are near college campuses and in major cities like New York, Los Angeles, and Portland. Around 150 stores will be rebuilt by Christmas, and more than 200 a year thereafter.
Two distribution centers will be added this year to help replenish stores near the New Jersey-Delaware border and in the Chicago area. Two more will open the following year.
In the coming year, Target will try new ways to accelerate and improve customer service. Technology-based ways to replenish shelves are being tested. It also tests new hubs that sort packages, give employees time to pick and pack online orders, and help the company develop efficient delivery routes that save time and money.
With the moves, CFO Michael Fiddelke said the retailer would “take offense and take the opportunity to build on last year’s momentum”.
Target stood out from its retail competitors during the pandemic. As shoppers consolidated their trips, they spent more money in fewer places where they could find a wide variety of items. As customers made security a priority, they tended to move towards contactless approaches like picking up online purchases in the parking lot. As consumers spent more time at home, more of their money was devoted to things that helped them work, study and relax. These factors have benefited the big box retailer.
The company’s sales in 2020 rose more than $ 15 billion – more than total sales growth over the past 11 years.
Yarbrough said the statistics touted by Target could also be seen as a warning sign. This could mean the retailer has been growing for several years and like-for-like sales could be flat or negative in the quarters ahead.
However, he said if other retailers continue to fidget and shrink their footprints, Target will have more space to run. During the fiscal year, the company gained approximately $ 9 billion in market share across its categories.
“You are gaining market share,” he said. “There’s a lot of market share to be had.”