Get set to see lower prices, remodeled stores and new private labels at Target

NEW YORK – As Target Corp. continues to reel from the shift to online shopping, executives at the Minneapolis-based retailer dramatically walked back their previous goals for growth and said this year instead would be focused on making significant investments for the future.

Target said Tuesday it will spend $2 billion this year and a total of $7 billion over three years to support its plans, which include price reductions to get more people into stores.

Other initiatives — including remodeling stores, launching more private label brands and opening more small format stores — already were in the works. But CEO Brian Cornell said Tuesday the retailer feels a renewed sense of urgency to quicken the pace of those changes and roll them out more quickly.

"We're investing to win share — not surrendering," said Cornell, contrasting his plan with other retailers that have been shuttering stores. "There will be winners and losers in this new era in retail. This plan is all about coming out on top."

Target executives asked Wall Street for patience during the company's annual investors meeting, at which they laid out a road map for the coming year.

They warned that the retailer will take some financial lumps along the way, including a likely low single-digit decline in comparable-store sales this year instead of the previous goal of growing as much as 3 percent.

The lowered forecast — on the heels of disappointing fourth quarter earnings announced in the morning — stunned investors who sent the company's shares down 12 percent Tuesday, the biggest one-day decline since 2008.

"I don't really see the thing that's going to move the needle," said Amy Koo, an analyst with Kantar Retail. "Their strategies aren't really different from what they were before" except for lowering prices.

Target's revised financial model for 2017 includes taking a $1 billion hit to its operating margins, which will result in earnings per share of $3.80 to $4.20, markedly lower than the $5.01 it logged in 2016 and the $5.34 analysts were expecting.

While Target's lowered guidance was disappointing, Oliver Chen, an analyst with Cowen and Co., said the changes executives laid out show that Target is now on the offense.

"The bigger story is the new plan for the long-term as [Target] embraces retail for the long-run game," he wrote in a research report.

Many analysts were miffed that Cornell and his team did not bring up groceries, one of the biggest factors in Target's slide in sales last year.

"I felt for sure [Cornell] was going to address it," said Brian Yarbrough, an analyst with Edward Jones. "I feel like that shows they still don't have a concrete plan about what they're going to do about it."

And when analysts brought groceries up during a question-and-answer period, Yarbrough added that executives didn't have much new to say about it.

Cornell said he's "very focused" on improving the grocery business and will be making sure the retailer is competitively priced in that department.

Mark Tritton, Target's chief merchandising officer, added that new grocery displays and layouts that have been rolled out in Dallas and Los Angeles have performed well and will start showing up in more stores around the country as part of store remodels.

Target also has been working to improve its fresh produce by making daily deliveries to stores instead of multiple times a week, he said.

After a major data breach in 2013, Target increasingly has relied on promotions and sales to highlight value and bring shoppers into its stores. But now, Cornell said, Target will lower prices across the board in more of an everyday low price approach.

The focus on price comes as Wal-Mart has been doubling down on lowering prices. While analysts said Target needs to react to the price competition in the market, some also expressed reservations about Target trying to go head-to-head with Wal-Mart.

"We would also caution that Target should not chase Wal-Mart on price, as it is a battle that cannot easily be won," Neil Saunders, an analyst with GlobalData Retail, said in a research note. "We also believe that many of Target's issues are not solely price related."

Cornell said Target has been deliberate, slowly testing new concepts and rolling them out on a limited basis. But with the consumer and the industry in the midst of major change, it requires a bigger, more immediate response, he said.

"We've got to go faster," he said.

Building on the success of new brand launches last year such as Cat & Jack and Pillowfort, Target will launch or refresh more than 12 new brands over the next two years, mostly in apparel and home, representing more than $10 billion in sales.

John Mulligan, the retailer's chief operating officer, said Target will remodel about 100 stores this year. It will hasten the pace of those remodels to 250 next year and hope to have 600 of its 1,800 stores "re-imagined" by 2019.

"There's a large percentage of the portfolio where the buildings don't match the brand," Cornell said. "They're old. They're tired and haven't been updated in years."

Executives said each remodel is expected to cost about $5 million and should lead to a 2 to 4 percent increase in sales at those stores.

In addition, after slowly rolling out smaller-store formats in the last couple of years, Target is going to ramp up its number of new store openings. It opened 15 such stores last year. This year, the number will be 30, accelerating the pace to 40 new stores a year by 2019, when Target will have more than 100 of the stores.

Kavita Kumar • 612-673-4113