As Brian Cornell continues his “transformation” at Target, the company is keeping one eye on costs and the other on digital.
Target Corp. on Tuesday at its annual investor conference in New York said it will cut several thousand jobs from its Minneapolis headquarters over the next two years as part of $1.5 billion in savings the company plans to realize over two years to fund its growth.
The retailer is also revving up apparel design and will increasingly focus on new, more flexible formats, like TargetExpress and CityTarget, which cater to guests in rapidly growing, dense urban areas.
Cornell, chairman and chief executive officer, said the retailer is in the early stages of a “transformation.” He said Target’s differentiation in the marketplace will be driven by stronger merchandising authority and a shopping experience that’s centered on “ease and inspiration with mobile serving as the front door to all of Target.”
Target’s future is largely a digital one as it boasted a 50 percent increase in digital conversion last year and three times the sales of average competitors.
Digital sales accounted for more than half of Target’s total comp-sales growth in the most recent fourth quarter. “More than 70 percent of digital experiences are brand new,” Cornell said. “Last week we cut our free shipping threshold in half, from $50 to $25. We did that given the strong response to an aggressive free-ship policy we offered during the holidays. Ninety-eight percent of Target guests shop digitally and the vast majority use a mobile device. Mobile conversion is at 69 percent.”
Given the rapid growth of Target’s digital business, the company is “aggressively hiring data scientists, product managers and engineers in expanded offices from San Francisco to Bangalore,” said Casey Carl, Target’s chief strategy and innovation officer.
Other digital enhancements include a Zero Click auto-replenishment service for everything from diapers to skin-care products, with the option of home delivery or in-store pickup.
Carl said the company has established an enterprise growth initiatives team, which will look at issues such as what wholesale opportunities exist for the Target brand in foreign markets.
Target reiterated 2015 guidance of 2 to 3 percent total sales growth and a 1.5 to 2.5 percent increase in same-store sales. Earnings per share were projected at $4.45 to $4.65 for the year, compared with $4.27 last year.
For 2016 and beyond, Target expects 3 percent total sales growth annually with a 1 percent increase in same-store sales.
Throughout 2015, the retailer will open eight TargetExpress locations across the country. In addition, it will continue to open the right stores to fit each community and test new layouts in its general merchandise stores.
“Now that we decided to step away from Canada, we’re putting all-out energy into growing the urban formats,” Cornell said. He said all eight Express stores will be very different, but all will feature apparel, beauty, wellness and some food. “These smaller formats, particularly CityTarget, have a much larger gross margin contribution. The signature categories are standing up. This is the formula we want to make sure we unlock.”
Asked about employee wages, Cornell wouldn’t get specific, saying that Target calculates wages market by market, not on a national level. “To be really clear, we will increase wages in 2015, market by market as part of our regular cycle,” he said. “This is something we planned for, not something we’re reacting to.”
Again admitting that it had lost its edge in terms of style, Target told the investment community how it plans to recapture its position as the retailer known for design prowess.
A revamped Merona, Target’s largest apparel brand, will make its debut in the spring, inspired by the international runway and Brazilian culture. An exclusive swimwear collection by Sports Illustrated model and designer Tori Praver is on tap. There’s a women’s apparel line geared toward Hispanic customers, tentatively called Ampar, that’s being tested and Target is curating a collection of men’s products online under the banner Target Collective. There’s also the previously announced Ava & Viv line, which takes aim at the $17 billion plus-size market and Target + Lilly Pulitzer, bowing in April.
“Apparel is a place where we’ve been driving change in the last year,” said Kathee Tesija, executive vice president and chief merchandising and supply officer. “Apparel outperformed much of our business and that of our competitors’, and we expect strong performance to continue.” She said Target lost its way in terms of style by focusing on gross margin rate improvements.
Target’s stock added 32 cents to close at $78 Tuesday, just shy of its 52-week high of $78.40.