Target to Slash Thousands of Jobs, Invest $1 Billion in Supply Chain and Tech

At a meeting this week for the investor community, Target Corporation chairman and CEO Brian Cornell and members of his leadership team presented the vision and strategies that will transform the retailer's business: slashing thousands of jobs over the next two years and investing roughly half of its 2015 CapEx of as much as $2.2 billion in supply chain and technology.

"Following a thorough, strategic review of our business, coupled with a careful evaluation of the changing retail landscape, we have identified the key initiatives that will put Target on a clear path to growth," said Cornell. "We're focused on our future and building the capabilities that will take us further, faster. Redefining Target will require a renewed emphasis on prioritization and innovation, and above all else, putting our customers first in everything we do."

Target plans to save $2 billion over the next two years as part of its efforts to grow and increase profitability, with savings coming through operations, technology and process improvements; supply chain and sourcing efficiencies; and corporate restructuring. The company plans to eliminate thousands of jobs, mostly in headquarters, over the next 24 months and create centralized teams based on specialized expertise. This year, Target expects to invest between $2 and $2.2 billion in capital expenditures, including a $1 billion investment in technology and supply chain.

The retailer's differentiation in the marketplace will be driven by stronger merchandising authority and a shopping experience centered on ease and inspiration, with mobile serving as the front door to the Target brand. "Mobile is becoming increasingly important to all digital retailers and given the profile of our guests, it’s particularly important for Target, as mobile accounted for more than 40 percent of our digital orders in the fourth quarter," Kathee Tesija, chief merchandising and supply chain officer, told analysts during a call regarding the retailer's 2014 fourth-quarter performance. "And notably on Black Friday, 10 percent of our iPhone app revenue was from guests purchasing on their phone while they were simultaneously shopping one of our stores."

The retailer aims to regain its cultural leadership with the goal of nurturing unparalleled customer affinity. In addition, Target will create a headquarters team that is more agile, efficient and customer-focused.

Target's transformation roadmap includes the following areas of focus:
  • The retailer is taking a channel-agnostic approach to growing its business, driving a total Target experience across stores, online and mobile. Customers who shop Target in stores and online generate three times the sales compared to customers who shop in stores only. Throughout the week of Black Friday last year, Target received 400,000 store pickup orders, and orders fulfilled in stores accounted for half of the retailer's digital traffic in the four days leading up to Christmas, Tesija added. What's more, 35 percent of guests who picked up a digital order also shopped the store during the same visit.
  • Continued enhancements in technology, supply chain and inventory management will create a shopping experience that is rooted in ease and inspiration. This will help spur Target's continued annual growth in digital channel sales of 40 percent, as well as contribute to a total projected sales growth of 2 to 3 percent and comparable sales growth of 1.5 to 2.5 percent in 2015.
  • Style, Baby, Kids and Wellness are being prioritized and will be the merchandise categories Target hopes to be famous for – the company will invest in these areas with a focus on newness and differentiation. In 2014, these four categories accounted for more than a quarter of Target's sales. Other categories, including Grocery, are being repositioned to deliver a more compelling and appealing shopping experience.
  • Target will create a more customer-centric experience by tailoring its assortment and offering more locally relevant products, with demographics, climate, location and other customer-led factors driving merchandising decisions. Additionally, Target will strengthen its data and analytics and technology capabilities to deliver more personalized digital experiences, loyalty programs and promotional offers. 
Target's store opening plans will increasingly focus on new, more flexible formats like TargetExpress and CityTarget, which cater to customers in rapidly-growing, dense urban areas. Throughout 2015, the retailer will open eight TargetExpress locations across the country. In addition, the company will continue to open the right stores to fit each community and test new layouts in its general merchandise stores.

"While we're in the early days and there's no doubt that transformation can be challenging, we're taking the steps necessary to unleash the potential of this incredible brand," said Cornell. "I'm encouraged by our early momentum, and am confident that by implementing our strategy, simplifying how we work, and practicing financial discipline, we will ignite Target's innovative spirit and deliver sustained growth."
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