Minnesota retail and restaurant companies strained in 2016

The shift to online shopping once again took a toll on Minnesota's largest retailers last year. The state's biggest retailer, Minneapolis-based Target Corp., had a particularly disappointing year, as it finds itself in a fierce battle with Amazon.com and Wal-Mart. Its overall revenue dropped 5.8 percent to $69.5 billion, down from $73.8 billion the year before, a reflection in part of removing pharmacy sales from its books since selling that part of the business to CVS. Meanwhile, Target's profit dropped nearly 20 percent to $2.7 billion, down from $3.3 billion the year before. The performance threw a major curveball into CEO Brian Cornell's transformation efforts as Target struggled on a number of fronts including drawing shoppers to its stores and sales in its grocery aisles.

The online juggernaut Amazon continues to amass more loyal shoppers through its Prime program, siphoning off business from other retailers such as Target in the process.

"More and more of the business is shifting online," said Brian Yarbrough, an analyst with Edward Jones. "And it all comes at a much higher cost. [Online sales] are lower profit."

Meanwhile, he added, Amazon has been given more license from investors to operate without being too concerned about its profitability as it goes after market share.

Twelve retailers and service companies made the list of the Star Tribune's Top 50 companies. With $146 billion in sales among them, they account for 28 percent of the revenue and 14 percent of profits of the 50 companies.

While Target has had a rough go, it hasn't been hit as hard as department stores such as Macy's, Kohl's and J.C. Penney, which have been reporting deeper declines in sales. As they retool their business for the internet age, they have been closing hundreds of stores. Meanwhile, a number of apparel retailers such as the Limited and Wet Seal have also been disappearing, unable to make it in the changing landscape.

Target sees an opportunity to capitalize on the void left by those stores. Cornell said last week that he thinks there could be up to $60 billion in sales up for grabs. So his strategy of remodeling stores, opening smaller-format stores, lowering prices, creating new brands and overhauling its supply chain will better position Target to capture some of those sales.

Meanwhile, Richfield-based Best Buy is expected to get a boost from the recent demise of HHGregg, a regional competitor.

It's also facing steep competition from Amazon, but has managed to hold its own and stay fairly steady the past couple of years, so much so that CEO Hubert Joly declared his Renew Blue turnaround phase to be completed earlier this year and unveiled a new road map aimed at growth called Best Buy 2020: Building the New Blue. Last year, it reported $39.4 billion in sales, slightly lower than $39.5 billion in 2015. Its profits jumped 50 percent to $1.2 billion, up from $807 million.

Kavita Kumar • 612-673-4113