Target announced plans Tuesday to cut prices while hanging on to aspects of the "Tar-zhay" image that’s endeared it to customers.
The retailer has made good progress rolling out new brands, tailoring stores to local markets and improving Target’s ability to cater to customers shopping both online and in stores, CEO Brian Cornell said.
"But it’s clear from our results that wasn’t enough," Cornell said in a conference call following the release of Target’s fourth-quarter results, which showed weak store sales and tumbling profits.
Online sales grew 34 percent in the fourth quarter of 2016, but add in business at stores open at least 13 months and sales declined 1.5 percent compared with the same period in 2015. The retailer’s outlook for 2017 was below industry analysts’ expectations, and its shares closed down more than 12 percent Tuesday — its biggest single-day drop in more than eight years, according to FactSet.
Cornell said Target’s troubles were part of a "seismic shift" in the retail industry as customers spend more on experiences and demand quicker, more convenient ways to shop. Sales also are moving online, and even when customers pick Target over an online competitor like Amazon, they shop differently.
"Today, the essentials-based Target run doesn’t completely translate to the digital world," Cornell said.
Those trends have hit all traditional retailers, though Wal-Mart reported an increase in sales at stores open at least a year during its most recent quarter. Nordstrom, Macy’s and Kohl’s all reported lower revenue and sales at established stores in the most recent quarter, and J.C. Penney last week announced plans to close between 130 and 140 stores.
Cornell said he hasn’t seen as many distressed retailers as there are now since 2009, during the recession. A wave of competitors’ store closures could be good news for Target in the long term — but in the short term, aggressive promotions will put pressure on Target’s business, he said.
To compete, Target will cut prices and accept lower profit margins.
It’s also "embracing this new reality" and will continue investing in its online business, updating its brick-and-mortar stores and adding more small stores in cities and near college campuses, Cornell said.
Target had 32 of those smaller stores as of the start of this month, including stores in Chicago’s Streeterville, Lincoln Park and Hyde Park neighborhoods, and plans to add 100 more nationally by 2019.
Chicago is one of its top 10 markets for small-store growth, company spokeswoman Kristy Welker said recently. It’s planning to open four more of the stores by October — in Skokie, Oak Park and two in Chicago’s Lakeview neighborhood.
The small stores let Target expand its business in areas where a traditional big box wouldn’t fit, but also act as local fulfillment centers for online orders, Cornell said.
Target also will refurbish more than 600 of its older stores in the next three years and expects the updates to boost sales by 2 to 4 percent at each store, said Target Chief Operating Officer John Mulligan.
Stores will have space for more interesting displays in the aisles. By the end of the year, employees on the sales floor will have technology to help customers purchase some out-of-stock items for delivery without visiting checkout.
Other changes will cater to online shoppers, including separating areas for returns and order pickup and expanding the number of stores that can ship items to customers. Target also is testing technology that would alert staff when customers arrive to collect online orders to speed their trips through the store, Mulligan said.
Target also said it plans to launch a dozen new brands in the next two years, which it hopes will drive about $10 billion in sales.
Associated Press contributed.
lzumbach@chicagotribune.com
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