Aim to invest $ 4 billion to accelerate new stores, expand supply chain

A person wearing a protective mask walks past a Target Corp store in the Grossmont Center Mall in La Mesa, California, USA on Thursday, February 11, 2021.

Bing Guan | Bloomberg | Getty Images

Target said on Tuesday it hopes to build on recent growth by investing around $ 4 billion annually over the next few years to accelerate new stores, improve existing stores and increase its ability to fulfill online orders quickly.

This is an increase in the retailer, which invested about $ 2.65 billion in 2020.

However, investors and analysts were left without important information: a forecast for the year. The company declined to provide guidance, saying Covid-19 makes it difficult to predict consumer spending.

Shares fell more than 6% on Tuesday afternoon, despite Target beating earnings expectations in the fourth quarter and reporting strong sales in January.

Target CEO Brian Cornell said on Tuesday at a virtual investor day that the retailer’s recent results are not a pandemic-related blip, but the profit of its long-term business strategy. He pointed to investments and decisions he has made over the past five years, such as the growing collection of private label brands, his partnerships with popular national brands and the use of stores as hubs to execute online orders.

“This is not a fluke, but is further proof that we have built a business model that works as intended, which puts Target in its own category,” Cornell said.

He told investors that continued uncertainty would not deter the company in the coming months.

‘I recognize the frustration, no longer exactly, especially when we think of sales, but I can guarantee you that our entire leadership team and that every part of this organization is focused on maintaining and growing market share, regardless of the variables we need. face it, ‘Cornell said.

Investors are not only outraged at Target’s lack of leadership, said Brian Yarbrough, a retail analyst at Edward Jones. They are also concerned about the trader’s warning that he expects lower margins this year. This will bring fixed costs together, such as paying higher employee wages and fulfilling a growing number of online orders – while it may have lower sales as the pandemic trends decline. Target raised the minimum wage this summer to $ 15 an hour.

Target also said it will have more merchandise this year, something it had little of in 2020 due to high demand and lower inventory. It also reduces profitability, Yarbrough said.

New stores, distribution centers

Target’s next steps will include opening 30 to 40 new stores each year. Some of these stores are close to university campuses and in major cities such as New York, Los Angeles and Portland. It will renovate about 150 stores by the holiday season and more than 200 a year thereafter.

It will add two distribution centers this year to support the replenishment of stores near the New Jersey-Delaware border and in the Chicago area, with two more in the next year.

In the coming year, Target will try new ways to speed up and improve customer service. It will test technological ways to recharge shelves. And it will test new pivot points that sort through packages, thus making employees’ time available to pick and pack online orders and help the business design efficient delivery routes that save time and money.

With the move, CFO Michael Fiddelke said the retailer would “take offense and lean on the opportunity to build on last year’s momentum.”

Target noticed small competitors during the pandemic. As buyers consolidated travel, they spent more money on fewer places where they found a wide variety of items. As shoppers put safety first, they moved to contactless approaches, such as picking up online purchases in the parking lot. As consumers spent more time at home, they sent more of their dollars to items that helped them work, learn, and relax. The factors favored the big-retailer.

The company’s Sales in 2020 grew by more than $ 15 billion – greater than the total sales growth in the last 11 years.

Yarbrough said statistics, which Target put forward, could also be seen as a warning sign. This could mean that the retailer has outgrown a few years of growth and that comparable sales may be flat or negative in the coming quarters.

However, he says that if other retailers continue to struggle and reduce their footprints, Target will have more room to manage. It achieved approximately $ 9 billion in market share in its categories during the financial year.

“They take market share,” he said. “There is a lot of market share to be detected.”

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button