Target powers through a pandemic, to invest US$4b in store network

Target will plough US$4 billion into its business this year to redo its stores and add new ones as well as speed up its delivery network, as the discounter aims to keep up with increasing demands of its shoppers shaped by the pandemic.

The investment, announced Tuesday, includes testing a “sortation centre” in Minneapolis that will free up time and space for workers at its surrounding stores. Target will also accelerate the pace of building small-format stores, with plans to add 30 to 40 new stores this year, up from 29 last year. It also plans to step up the pace of its store remodel programme.

The capital investment is up 50 per cent from the previous year.

The moves come as the Minneapolis-based discounter extended its sales streak through the holiday quarter and sales grew by more than US$15 billion. That exceeded the company’s annual sales growth over the past 11 years combined.

With the habits of millions altered because of the spread of COVID-19, online sales last year surged by almost US$10 billion and Target made it increasingly easy to shop.

Fourth-quarter profits soared 66 per cent and sales jumped 21 per cent, both topping Wall Street expectations.

Sales at stores opened at least a year rose 6.9 per cent compared with the comparative period last year. Online sales soared 118 per cent. Customer traffic in stores rose 3.7 per cent, and average dollars spent rose 15 per cent.

In the previous quarter, same-store sales rose 10 per cent, while online sales spiked 155 per cent.

The Minneapolis retailer picked up US$9 billion in market share from rivals in fiscal 2020.

Big-box stores including Home Depot, Lowe’s and Walmart all had huge fourth quarters with Americans still consolidating shopping trips.

Like all big-box stores, Target was allowed to stay open during the early onset of the pandemic last year, while department stores and mall-based retailers were forced to temporarily close because they were considered non-essential. That increased the dominance of Target and other discounters.

Target, which had already been expanding its delivery services before the pandemic, pushed even harder in that area. Same-day services, such as picking up orders inside the store or at kerbside, soared 212 per cent, led by drive-up service, which increased more than 500 per cent.

And its omnipresent store locations have been an advantage. More than 95 per cent of Target’s fourth-quarter sales were fulfilled by its own stores.

Target says that shoppers who use those services are spending more. First-time users of Target’s drive-up service spent 30 per cent more on average, the company said.

“We placed the physical store more firmly at the centre of our omni-channel platform, and we created a durable sustainable and scalable business model that puts Target on a road of our own,” Target CEO Brian Cornell told analysts at its annual analysts’ meeting.

Target’s push starting in 2016 to build its own store brands, including Cat & Jack and Goodfellow & Company, have also pulled in shoppers. Ten of its brands each generate US$1 billion or more, and four of those have crossed the US$2 billion, the company said.

Overall sales in 2020 rose 19.8 per cent to US$92.4 billion, up from US$77.1 billion last year.

Target has also announced a series of partnerships that should help drive more shoppers to its stores. Late last year, it signed a deal with beauty chain Ulta Beauty that will place Ulta shops in more than 100 Target stores by mid-2021.

Target said net income rose to US$1.38 billion, or US$2.73 per share, in the fourth quarter, from US$834 million, or US$1.63 per share. Adjusted results were US$2.67 per share, which topped estimates of US$2.54 per share, according to FactSet.

Sales rose 21 per cent to US$28 billion for the quarter. Analysts were expecting US$27.4 billion.

The company did not provide a financial outlook due to uncertainty related to the pandemic. Target was among many that pulled back on guidance at the onset of the pandemic. Best Buy and Macy’s both offered outlooks when they reported earnings results last week.

AP