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Target's $7 billion investment in stores paying off Investment: Target has work to do in digital.

Byline: Rachel Siegel The Washington Post

When Target CEO Brian Cornell took the stage at a company investor meeting Tuesday morning, he harked back to two years ago.

Same stage. Same meeting. Different Target.

In February 2017, Cornell looked out on the New York ballroom with a mixed bag of news. Sales at stores open more than a year were down. The company needed a turnaround, especially as scores of retailers began shutting down stores.

So Cornell made a promise: $7 billion in capital investments to overhaul and revamp the chain. That plan included remodeling hundreds of stores and the rollout a dozen exclusive, private-label brands.

On Tuesday, Cornell acknowledged that "at that time, the plan was not met with universal applause."

But now, he added, "our strategy is working."

Target has remade itself as a retail success. The brand is on track to remodel 1,000 stores by the end of 2020. It has launched more than 20 private-label brands. And customers are hooked on Target's roster of shipping options, including same-day delivery and curbside pickup.

The proof was in Tuesday's earnings results: Target celebrated its best year since 2005. Comparable sales in 2018, a measure of sales online and at stores open more than a year, grew by 5 percent. Comparable digital sales alone climbed 36 percent - marking the fifth consecutive year in which that figure grew more than 25 percent. On Tuesday afternoon, Target's stock price was up nearly 5 percent.

Large retailers have a unique ability to invest in this kind of overhaul, said Charlie O'Shea, lead retail analyst for Moody's. Shareholders may screech at how expensive these investments are in the short term. But O'Shea said Target came back with a strong answer: "Nothing's free. And you can't do it overnight."

"I don't think you could script it any better that it's turning out," O'Shea said.

Target has focused on giving customers options for how they shop. Its physical stores work in tandem with online shopping and delivery options. A customer can put in order through an app and then opt for curb-side pickup, for example, or peruse at a physical store and have the shopping bags delivered later on. In the fourth quarter, stores fulfilled nearly three of four of Target's digital sales.

Target's delivery service, Shipt, has expanded to 1,500 stores. Drive-up

is now an option in more than 1,000 stores. And those options are driving down Target's fulfillment costs. Physical stores are treated like small hubs, often in place of massive distribution centers. Order pickup and drive-up costs the company 90 percent less on average than fulfilling an order from a warehouse, Target said on Tuesday.

"You think about the Amazon model," O'Shea said. "There's not much brick-and-mortar. You can use a locker, but you've really got one option."

Still, Target has work to do before it catches up with Amazon on digital sales, said Sucharita Kodali, an analyst at Forrester. And Kodali cautioned that Target will still have to grapple with many of the economic questions looming over retailers in 2019, including tariffs and a possible recession.

"Things don't look as good as they did earlier in 2018," she said.

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Title Annotation:Business wire_
Publication:Daily Herald (Arlington Heights, IL)
Date:Mar 6, 2019
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