Despite posting better-than-expected results in the recent second quarter and plans to accelerate its flexible-format store rollout, Target Corp. isn’t immune from the vagaries roiling the retail industry.
The Minneapolis-based retailer on Wednesday confirmed it will close 12 full-size underperforming units, a sign that there’s little tolerance for locations that fall short of expectations in this bruising business climate.
A Target spokeswoman said employees at the 12 units, which are located mainly in the South and Midwest, were told of the closures on Nov. 6.
“We close a handful of stores each year through a very intentional process to ensure the continued health of our portfolio,” the spokeswoman said. “Target’s stores are a vital part of our future, enabling us to create engaging experiences for our guests as well as fill online orders. Target in 2017 opened 32 stores, creating more than 2,000 jobs.”
The stores’ final day of business will be Feb. 3, the spokeswoman said, adding, “Our team is one of our greatest assets and all eligible store team members are being offered the option to transfer to other Target locations.
Target isn’t alone in closing locations. Macy’s Inc. will shutter about 100 stores this year. Sears Holdings Corp. last week announced it will shutter 63 Sears and Kmart units, on top of the 350 store closures it cited earlier in the year. J.C. Penney Co. Inc. said it will close 140 units.
Target reported higher-than-expected second-quarter profits and a same-store sales increase of 1.3 percent. However, net income declined 1.2 percent to $672 million from $680 million a year earlier. Share buybacks boosted earnings per share to $1.22, from $1.07, and beat analysts’ estimates of $1.19 per share. The increase was driven by traffic growth of 2.1 percent. Sales in the second quarter rose 1.6 percent to $16.4 billion from $16.2 billion.
Target is emphasizing the digital channel, where comparable sales rose 32 percent on top of 16 percent growth in the second quarter of last year. Rival Wal-Mart Stores Inc. is also renovating existing stores, but it’s virtually closed the pipeline for new units as it focuses on e-commerce and digital.
Target last month held a press briefing at its West 34th Street store in Manhattan, which opened on Oct. 19. Target chairman and chief executive officer Brian Cornell sounded bullish about the retailer’s brick-and-mortar prospects, saying that Amazon’s recent Whole Foods acquisition “validates the strategy we’ve been talking about for the last couple of years. They recognize that physical stores are critically necessary for success.”
The retailer is moving into new neighborhoods “where we never competed before,” Cornell said of the smaller flexible-format model that’s Target’s growth vehicle on college campuses and urban areas. Target is actually accelerating the rollout of flexible-format units, with 28 stores opening this year, for more than 130 by 2019. The new flexible-format stores are seeing a 2 to 4 percent sales lift — more than twice that of a typical store where sales rose 1.3 percent last quarter.
“Small-format stores do twice the sales of normal stores, and some are higher,” Cornell said. “The stores do $500 to $600 per square foot.
“We’ll have a stronger presence in urban centers because that’s where the is consumer is migrating,” Cornell added. “We’re following the consumer. Productivity lifts are consistent across every market.”
The retailer is making a commitment to brick-and-mortar retail in other ways. Cornell said Target will remodel 600 stores over the next three years, 325 more stores than originally planned, and is committed to remodeling 1,000 of a total of 1,800 units by 2020, elevating key categories such as apparel, beauty and home in the process. “We’re continuing to invest to enhance and strengthen stores with $7 billion in the next couple of years,” Cornell said. “Our renovated stores see a 2 percent to 4 percent sales lift.”
“This decision wasn’t made lightly,” she added. “We have a rigorous process in place to evaluate the performance of every store on an annual basis, closing or relocating underperforming locations as needed. Typically, a store is closed as a result of seeing several years of decreasing profitability.”