Target revises year's plan as sales surge 20% mainly because of coronavirus

Target's sales have spiked more than 20% this month from people stocking up on food and household supplies, yet the disruption caused by the coronavirus means the retailer is putting on hold or postponing its other plans for the year, Target CEO Brian Cornell said.

The Minneapolis-based company will scale back the number of remodels and new stores this year as well as pause plans to add fresh groceries and alcohol to its pickup services.

In doing so, Cornell said the company hopes to minimize potential disruptions while employees are hustling to restock shelves, sanitize checkout lanes and fulfill a record number of Drive Up and in-store pickup orders during this "unprecedented time."

"We need to be disciplined about making sure our stores and supply chain can focus on serving our guests without any unnecessary distractions, knowing that we'll need to prioritize the flow of food, medicine, and other essentials for the foreseeable future," Cornell told reporters.

As Target has re-prioritized, Cornell also acknowledged that the time it is taking to get online orders to people's homes has increased. But he said the company plans to get it back to a two-day window as things settle down.

At the same time, Target noted that its profit margins may take a hit as apparel sales fall as the coronavirus threat changes people's buying habits and as the retailer spends more than expected on wage increases and benefits.

Target's shares dropped 9.5% on Wednesday after the retailer announced these changes.

As the COVID-19 crisis has unfolded, many department stores, specialty retailers, restaurants and bars have shut down for at least two weeks. But retailers such as Target, Walmart, Costco and groceries that sell food, medicine and other essentials have remained open and have been seeing a deluge in shopping — and in some cases hoarding — that has led to frequently empty shelves of items like frozen chicken, disinfectant wipes and toilet paper.

"A surge in stock-up shopping really set in at the end of February, and in the weeks since then there's been a prolonged surge," Cornell said.

While Target's comparable sales in February, up 3.8%, were fairly in line with expectations, he said sales and traffic greatly accelerated in March, with categories such as food, beverage and household supplies skyrocketing 50%. In addition, he said the company has seen strong sales in office supplies, crafting items, games and small kitchen appliances as more families work, eat and stay at home.

Meanwhile, Target's overall apparel sales are down more than 20% this month, which could hurt the retailer's gross profit margins since those tend to be more profitable.

On Wednesday, Target also announced stepped-up safety measures to what it had already rolled out in recent weeks as both employees and customers are on heightened alert about their risk of catching the virus. It will temporarily stop selling and packing items into reusable bags.

Target also will discontinue accepting returns for three weeks, while giving an extended return window once that suspension is lifted.

And it will now have workers clean checkout lanes after each transaction (instead of once every 30 minutes), mark where customers should stand 6 feet apart while waiting in line, and ensure customers are social distancing.

Given how rapidly the business is fluctuating and the continued uncertainty about the coronavirus, Target, like many retailers, withdrew on its quarterly and full-year guidance it laid out three weeks ago. It is also suspending share buybacks.

At its investors' meeting in early March, Target's leaders laid out a number of projects for the year, which are now being pared.

Target had planned to remodel 300 stores this year. On Wednesday, it said it would complete 130 of them which are already underway and will delay the others until next year since they can be disruptive to store teams.

Although it had planned to open 36 small-format stores this year, which would have been a company record, Target said it will reduce that to about 20 stores and move the remaining projects to next year.

"This preserves our focus on daily operations that are crucially important right now," said Cornell.

This spring, the company had also planned to begin adding fresh grocery in the Twin Cities, and alcohol in other markets, to its in-store pickup and Drive Up services, with a wider rollout to more stores across the chain later in the year. But those initiatives are now on hold.

Target also said it expects to have higher costs than expected in the quarter as it has increased pay, hours and benefits. Last week, Target announced it would spend more than $300 million on temporary $2 an hour wage increases for hourly workers, bonuses and increased benefits and paid sick time for employees. Other retailers have announced similar measures.

While other retailers such as Amazon, Walmart, CVS and Dollar General are hiring tens of thousands of additional workers to keep up with demand, Cornell said Target is offering additional hours to current employees first to increase staffing of services such as order pickup and Drive Up and then will hire from the outside as needed.

Shipt, Target's same-day delivery service for it and other retailers, has also gone on a hiring spree to recruit thousands of additional contract workers in markets around the U.S. including in the Twin Cities.

Kavita Kumar • 612-673-4113