With Its Winnings Down, Target Bets Big on New Stores, New Brands, New Prices

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Target unveils its 2017 strategy at its annual financial community meeting in New York.
Target unveils its 2017 strategy at its annual financial community meeting in New York.  Credit: Target

Target is struggling just like its competitors. But unlike the competition, the marketer isn't closing stores. Instead, the Minneapolis-based retailer intends to make its existing 1,800-unit fleet work harder—and it's spending heavily to make it happen. At its annual financial community meeting Tuesday in New York, Target announced it plans to invest $1 billion in annual operating profits starting this year, along with $7 billion in capital over the next three years, in order to remodel stores, improve digital infrastructure and supply chain operations and introduce new in-house brands.

"Evolution is in our blood," said Brian Cornell, chief executive. "While others are pulling back, Target is investing to compete and investing to grow."

It's an aggressively risky strategy considering the chain also reported dismal holiday and 2016 results, as it continues to compete with Walmart and Amazon. Same-store sales for the fourth quarter fell 1.5% and dropped 0.5% for the full year. The company saw fourth-quarter sales fall 4.3% to $20.7 billion. Not pleased, investors sent the brand's stock down more than 12% by early afternoon on Tuesday.

Target executives remain unfazed and plan to double down on their efforts to seize market share as others close stores. Over the next two years, the retailer plans to introduce more than a dozen exclusive brands, building on the success of last year's Pillowfort home brand and Cat & Jack childrenswear brand, and put marketing dollars behind them. Earlier this year, Target promoted Rick Gomez to chief marketing officer.

Mr. Cornell noted that Target plans to allocate marketing resources around the Target brand and "continue to use digital in a much more meaningful and effective way." Much of the marketing message moving forward into 2017 will focus on the household essentials of a typical "Target shopping run."

The chain, which spent $468.2 million on measured media in the U.S. in 2015, according to Ad Age's Datacenter, also plans to move away from promotional pricing in order to concentrate on everyday value. Also, it's ramping up its small-format store strategy by adding 30 of such locations this year, more than double the current count of 32, which includes the well-received Manhattan location that opened in New York's TriBeCa area in late 2016. In addition, by 2020, Target plans to remodel and update 600 of its existing stores.

Though Target is still trimming its fleet by closing some 10 to 15 stores in 2017, which is consistent with previous years, the brand is not chopping nearly as many stores as Sears, Macy's and JC Penney, which have all recently announced numerous closures. Last week, JC Penney said it will close up to 140 locations as it tries to cut costs. Target is hoping that by staying the course, the brand will eventually reap opportunities from the shrinkage of its brethren.

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