While Wal-Mart’s efforts to expand its online operations and find new ways to cut costs in its brick and mortar stores are starting to show a great deal of promise, one of its greatest competitors, Target, is still slipping under the water in a sea of retail change.
Sales and profits continue to decline and the company is already forecasting a 2017 profit 25% lower than Wall Street has predicted. Share prices have been falling, signaling that Target may be in some trouble.
Changing Directions and Getting Back to the Basics
Target Chief Executive Brian Cornell took the reins in August 2014 and was immediately thrown into the middle of a giant data breach fiasco that hurt the retailer’s credibility for years.
Initially, Cornell focused company efforts on reminding its existing customer base about its core values. Investment in specialty foods and in-house trendy labels slowly brought customers back, but the lack of a unified digital strategy ended up hurting the company in the long term.
Now Target is taking a lesson from the dramatic turn-around of Wal-Mart and giant success of Amazon. The Wall Street Journal reports that Target intends to invest $7 billion over the next three years to improve its supply chain and digital capabilities, as well as to turn the focus of many stores to the core value of quality at a discount. The company is prepared to trade about $1 billion in profit for lower in-store prices and lower margin digital sales.
Amazon Prime Popularity
A recent Goldman Sachs report found that Target customers were more likely than Wal-Mart customers to hold an Amazon Prime Membership, indicating that they were far more comfortable with digital shopping than many other populations. This insight has led many analysts to suggest that Target should shutter more stores and eliminate under-performing media categories, including CDs and DVDs.
As sales continue to fall, Target’s goal of using more of its stores for online fulfillment is likely the only path to profitability. Cornell told The Wall Street Journal that Target is committed over the next three years to revamp up to 600 current locations and open 100 smaller stores in college towns and urban areas, where its target demographic is strongest. Only time will tell if this dramatic shift in focus to eCommerce will be enough to stop the bleeding.