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Target Announces 3-Year Plan In Wake Of Disappointing Q4

Target will open 30 smaller-format stores this year as part of a $7 billion, three-year capital investment plan. 

The chain announced the ambitions after releasing disappointing fourth-quarter and full-year 2016 financial results, in which Q4 sales dropped 4.3 percent to $20.7 billion, from $21.6 billion last year. Comp-store sales decreased 1.5 percent for the quarter and 0.5 percent for the year, but comparable digital channel sales grew 34 percent for the quarter and 27 percent for the year.

“Our fourth quarter results reflect the impact of rapidly changing consumer behavior, which drove very strong digital growth but unexpected softness in our stores,” said Brian Cornell, Target chairman and CEO, in a statement.  

Segment earnings before interest expense and income taxes (EBIT) were $1.34 billion in Q4, down 13.5 percent from $1.55 billion in Q4 2015.

See: Target Holiday Sales Fall 5%; Electronics Even More So

To combat this softness, Target said it will invest over $7 billion in capital over the next three years, and about $1 billion in annual operating profits, “to grow sales faster, gain market share, adapt to guests’ rapidly changing preferences and give them even more reasons to choose Target.”

Cornell also said the retailer will “put digital first” and will launch over a dozen new home and apparel brands within the next two years.

The chain will “reimagine” over 600 locations, beefing up its ship-to-store capabilities by making better use of stockrooms as distribution centers. All Target stores are on tap to feature ship-to-store by 2019. By the end of this year, all stores and its sales associates will also have enhanced technology for inventory location, mobile point-of-sale and delivery assistance.

The chain will also invest in lower gross margins to remain price competitive. On this point, Cornell noted: “While the transition to this new model will present headwinds to our sales and profit performance in the short term, we are confident that these changes will best-position Target for continued success over the long term.”

The retailer said the 30 small-format stores on tap for this year will double its presence in dense urban markets and on college campuses.  Over 130 small format Targets will be open by 2019.

The retailer, which said it has doubled its digital sales from 2013 to 2016, plans to combine its Cartwheel savings app with its flagship Target app.