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Target (TGT) Pulls Itself Up to Take On Amazon & Walmart

Zacks

Retail is no longer restricted to brick-and-mortar. With the wave of digital transformation hitting the sector, retailers are fast adopting the omni-channel mantra to provide a seamless shopping experience, whether online or in-stores. Consumers now seek more convenience, personalization and speed, and retailers are coming up with ground-breaking ideas to build a loyal customer base. To keep up with the trend, retailers are ready to go the extra mile, undertake strategic partnerships and buyouts as well as make prudent investments. Target Corporation TGT is no exception in this regard.

Industry experts believe that though Target is in its nascent stage with respect to digital initiatives when compared to bellwethers Amazon AMZN and Walmart WMT, it is firing on all cylinders to gain a better place in the competitive and dynamic retail landscape. The company is deploying resources to enhance omni-channel capacities, come up with new brands, remodel or refurbish stores, and expand same-day delivery options. To sum it up, the company has been aggressively adopting strategies to enhance the shopping experience through miscellaneous channels.

Target Gets Act Together

Target announced a number of initiatives as part of its multiyear strategy. This includes a free two-day shipping on items purchased on Target.com on a minimum spending of $35, or on payment via REDcard. Drive Up, an app-based service, is another initiative to expedite the shopping process. The service is currently available at 50 stores, allowing customers to place orders using the Target app and have them delivered to their cars. The company intends to expand the service to 1,000 stores by the end of this year.

This merchandise retailer plans to expand delivery service for customers' in-store purchases to all New York stores and four new cities — Boston, Chicago, San Francisco and Washington, DC — this year. The orders will be delivered either to their home or office on the same day for a flat fee.

Target has also made a concerted effort on the same-day delivery front by acquiring Internet-based grocery delivery service Shipt. The company intends to expand the service to majority of stores by 2018 holiday season. At present, the service is available at more than 440 outlets across the Southeast and the Twin Cities. The company will provide same-day delivery of groceries, essentials, home, electronics as well as other products.

Further, it plans to extend Target Restock program to more than 30 new cities. The program allows customers to restock their shipping box with essential items online and get them delivered at the door step by the next business day for a nominal charge. Further, in order to improve supply chain and expand delivery capabilities, the company has acquired Grand Junction.

Target continues to lay emphasis on developing smaller format stores to tap densely populated urban regions and space-crunched cities. Majority of the company’s planned opening of 30 stores this year will be in small format. The company also plans to remodel more than 300 in fiscal 2018, significantly up from about 110 remodeled last year. Further, in line with its peers, the company has been introducing exclusive brands. Recently, it launched Universal Thread, a lifestyle brand for women, and intends to unveil Opalhouse, an eclectic home collection, in April.

Wrapping Up

Target, which shares space with Costco COST, is committed to make a capital investment to the tune of more than $3 billion this year. Analysts pointed that incremental investments may weigh on margins to an extent and in turn the bottom line. However, it is better to face short-term impediments in order to attain the long-term goals. Target is trying all means to fast adapt to the altering retail environment.

Management laid out these strategies following the company’s fourth-quarter fiscal 2017 results, wherein adjusted earnings of $1.37 per share missed the Zacks Consensus Estimate by a couple of cents and declined 5.8% from the prior-year quarter. However, total sales of $22,766 million surpassed the consensus mark of $22,463 million for the fourth straight quarter, and rose 10% from the year-ago quarter. Notably, comparable digital channel sales increased 29% during the quarter.

Following the results, shares of Target declined roughly 4.5% during the trading session on Mar 6.



Nevertheless, we believe these initiatives are likely to bolster Target’s performance and cushion the stock. In the past three months, shares of this Zacks Rank #2 (Buy) company have rallied 17%, outperforming the industry’s growth of 5.6%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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