Target executives focus on better groceries and new stores near colleges

NEW YORK – Target Corp. executives told investors and analysts Wednesday that they expect to grow about the same rate this year as last year and charted a path to faster gains in 2017.

To do it, the Minneapolis-based retailer isn't looking at flashy moves like delivery by drones. Instead, executives said they are focused on more fundamental things such as making sure the company's website and apps work, store shelves are filled and groceries are fresh.

"These are the things that make Target work," Chief Executive Brian Cornell said at its annual financial community meeting here. "These are the building blocks of our future. And these are the things that will drive growth at Target for years to come."

The company said it expects comparable store sales, a measure that includes online sales as well as those at stores open at least a year, to be in the range of 1.5 percent to 2.5 percent this year. That's in line with the 2.1 percent comparable store sales growth it experienced last year. In 2017, Target will boost that goal to 3 percent or more growth.

By comparison, Target's biggest rival, Wal-Mart Stores Inc., has forecast no growth this year. Best Buy Inc., based in Richfield, has said the same.

On Wednesday, executives highlighted a strategy to build more stores near college campuses, such as one that opened in 2014 in Dinkytown near the University of Minnesota. This year, it will open new stores near Penn State and several colleges in the Boston area.

"Market research shows us that the lack of overall retail options on and around campus — from basic apparel to fresh food — is a real concern," said John Mulligan, Target's chief operating officer.

Meanwhile, executives said an overhaul of Target's grocery section is taking longer than expected. Last March, executives said they expected to roll out major changes in 2016. On Wednesday, though, Cornell said that he expects it will be a "multiyear effort." He added, "It's better to get it right than to get it done fast."

In the past year, Target executives have learned the food categories that sold the most at Target were those with the lowest growth potential. And its grocery mix tilted to packaged and dry goods, while most of the growth opportunity was in goods like produce, dairy and other fresh offerings.

"The deeper we dug, the more fundamental challenges we found," Cornell said. "We know repositioning food is going to be a much bigger task than just reconfiguring that part of the store."

So he said the company is practically going item by item to overhaul the assortment and assess its potential.

At the same time, Target has already been quietly adding hundreds of organic, gluten-free and other new products. And as a result, grocery sales grew faster than Target's overall sales during the last half of 2015.

At last year's meeting with analysts, Target revealed that the company would shed several thousand headquarters jobs. Over the past year, it cut more than 2,700 jobs, or about one-fifth of its corporate staff across the Twin Cities region.

Target is still the largest employer in downtown Minneapolis with about 7,500 employees, though now just barely above Wells Fargo.

On Wednesday, executives said the retailer was on track and may surpass its initial goal laid out last year to cut $2 billion in costs over two years. They told reporters that the layoffs were a small portion of that.

The rest has come from initiatives such as finding efficiencies in marketing and from vendors.

During a break, Cornell acknowledged to the Star Tribune that there may still be some more job cuts at headquarters, though "nothing like last year."

He added that the company is hiring hundreds of engineers to reduce its reliance on outside contractors.

While it continues to cut costs, Target is fueling some of those savings into improving its supply chain and technology and well as hiring hundreds of new visual merchandisers and digital assistants to work in stores.

Mulligan took analysts on a deeper dive into some of the challenges Target has had keeping stores stocked. He noted that Target's distribution system was built in a linear way to take in products from vendors at its distribution centers, then send them to stores. But online ordering, and allowing people to pick up items in stores that were purchased online, have disrupted that simple flow.

"We can't continue to add this kind of complexity without ensuring the foundation can support it," Mulligan said.

Since last summer, his team has been looking for ways to help improve product flow and lower the rate at which stores run out of a products. They have done things such as redesigning shelf space so more products are on the sales floor rather than in the backroom. It has also cut the variety of products in certain categories. As a result, he said a measure called "out-of-stocks" has been cut 40 percent.

The company is also putting seasonal merchandise and other slow-selling goods in specially dedicated distribution centers. That, in turn, frees other centers to handle on faster-selling items.

Target continues to work on new merchandising initiatives. In June, it will launch a new kids apparel line called Cat+Jack, which Cornell said is expected to be a multibillion-dollar brand. It will replace its licensed brand Cherokee.

Kavita Kumar • 612-673-4113