Target vows to slash prices, refurbish stores, and open smaller urban locations to better compete.
Target Corp. suffered tumbling stock prices in the wake of the announcement that it would be overhauling their operations in an effort to better compete with its competitors, according to Bloomberg. With 65 million Amazon Prime members, the online retail giant is definitely putting pressure on its brick-and-mortar competitors.
In that light, Target execs unveiled a series of initiatives that aim to revitalize the chain and boost declining same-store sales. They include a $2 billion investment in 2017 and an additional $7 billion over the next three years. The company will also use approximately $1 billion in operating profits to improve both its digital and brick-and-mortar operations this year, according to the earnings call transcript.
Target Chief Executive Officer Brian Cornell told investors “The retail industry is the midst of a seismic shift. We can bemoan change in the marketplace or embrace them. All across the retail industry many of our competitors are aggressively rationalizing their assets," he told analysts. "They are closing stores, exiting markets. They are cutting costs just to keep their heads above water. We've not seen this number of distressed retailers since 2009 in the Great Recession."
Much of the investment will be focused on adding more than 100 small format urban stores over the next three years and overhauling existing locations. The plan is to infuse aspects of the retailers LA25 concept store and to reconfigure stores to more efficiently serve as fulfillment centers for online orders, according to Cornell.
In addition, Cornell said that the company is committing to introducing more than a dozen new brands over the next two years, stating, “We will touch more than $10 billion of current volume with the expectation that we will accelerate growth within our most differentiated and profitable categories.” The price cuts will be focused on commodity products like food, consumables, and household products.
This is the spirit in which the new plan to re-design Target to attract shoppers back to the stores was created. But while it’s commendable that Target recognized the need to shake things up, “some of its initiatives will likely cause considerable pain in the short run,” UBS Group AG analyst Michael Lasser told Bloomberg.