Can a $7 Billion Investment Help Target Transform?

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Can a $7 Billion Investment Help Target Transform?

By Jamie Grill-Goodman - 03/07/2017
As Target reported disappointing earnings, it also announced plans to invest more than $2 billion of capital in 2017 and more than $7 billion over the next three years.

The retailer recorded $20.69 billion revenue in its fourth quarter fiscal 2016, a 4.3% decline from the prior-year period, however it did see comparable digital channel sales increase 34 percent in the quarter.

“Our fourth quarter results reflect the impact of rapidly-changing consumer behavior, which drove very strong digital growth but unexpected softness in our stores,” Brian Cornell, Target's chairman and CEO, said in a statement.
To adapt to shoppers' rapidly changing preferences Target will also invest about $1 billion in annual operating profits beginning in 2017. The company said its taking a long-term view with the investments.

“We’re putting digital first and evolving our stores, digital channels and supply chain to work together as a smart network that delivers on everything guests love about Target, including more than a dozen new brands we’ll introduce over the next two years," said Cornell.

In the last three years, Target has more than doubled digital sales from $1.4 billion in 2013 to more than $3.4 billion last year. In 2014, less than 7% of Target's transactions were digital. In 2015, digital sales reached almost 10% of total sales and Target fulfilled 41% of digital orders inside of a store. In 2016, digital sales climbed to 14% and stores were fulfilling 68% of digital orders.

"Looking ahead, our stores will still be the center of our business, but their roles will evolve," said EVP and CFO Cathy Smith. "Within our smart network, stores will fulfill many roles. In addition to serving as a place where guests can shop in return they will also be a digital hub. They will provide online order pickup and deliver directly to guests, and importantly, they will continue to offer genuine human interaction and engage in their local communities."

Target's Plans for Transformation

  •          Later this year, Target will combine Cartwheel—its savings app—with its flagship Target app.
  •          By 2019, all Target stores will have Ship from Store capability.
  •          This June, Target will roll out new technology that allows team members to search inventory, take payment from a mobile point-of-sale system and arrange delivery—all from the sales floor. It will be in all stores by the end of this year.
  •          Over the next three years, Target will "reimagine" more than 600 locations. 
  •          Target will open 30 small format stores in 2017, doubling its presence in dense urban markets and on college campuses. 
  •          By 2019, it will operate more than 130 small format stores.
  •          In the next two years, Target will introduce more than 12 new exclusive brands across apparel and home departments.