Adjusting to the impact from novel coronavirus (COVID-19), Target Corp. plans to more than halve its pipeline of store remodels and small-format store openings this year.
Target also said Wednesday that consumer demand triggered by the nationwide spread of the virus has boosted sales, with overall comparable sales surging more than 20% month to date in March.
For 2020, Target now aims to complete about 130 store remodels, compared with its earlier projection of approximately 300. The Minneapolis-based discount store chain said the new plan will enable it to finish projects already under way. All other planned remodels will be moved to 2021.
Likewise, Target said it expects to open 15 to 20 new small-format stores this year, down from the company’s previously announced plan for 36 small stores. Again, projects now in the works will be completed, with the rest shifted to next year.
Also being put on hold temporarily is an initiative to add fresh grocery and adult beverages into Target’s Drive Up and Order Pickup click-and-collect services.
“We are prioritizing the work that’s in front of us to support our team, store operations and supply chain, as families across the country rely on Target for everything they need in this challenging environment,” Target Chairman and CEO Brian Cornell (left) said in a statement. “I want to thank our entire team for their efforts, which have been nothing short of heroic.”
Cornell further explained the rationale behind the changes in a Q&A on Target’s website.
“It’s been so humbling to see our team members across the country doing an incredible job keeping Target’s supply chain operating and our stores open so guests can get what they need. As we look ahead, we want to keep minimizing disruptions so they can concentrate on that critical work. So we’re adjusting the timing of a few projects we had planned for 2020,” he said. “For example, we’ll reduce the number of new small-format store openings and store remodel projects set for 2020 — completing the ones already in progress and rescheduling the rest for 2021. We’ll also temporarily pause on incorporating fresh grocery and adult beverages into our Order Pickup and Drive Up services until later, when the team has more time to train and prepare for the changes. We’ll revisit these projects and set new dates when the time feels right.”
Target noted that traffic and sales have been “unusually strong” in stores and same-day online services as the coronavirus situation has evolved. The company said customers are stocking up on essentials such as food, medicine, cleaning products and pantry items.
While comparable sales and category mix met expectations in the first three weeks of the first quarter, which started Feb. 2, traffic and comp sales across categories escalated beginning in the fourth week of February and continued into the first part of March, Target reported.
Total comp sales rose 3.8% year over year for February. Then starting in mid-March came “an even stronger surge in traffic and sales,” mainly in essentials and food/beverage categories, Target said. Also seeing robust growth were hardlines product segments that support in-home activities, such as home office and entertainment, whereas performance “softened meaningfully” in apparel and accessories, the company added.
So far in March, overall comp sales are up over 20% versus a year ago, including more than 50% growth in essentials and food/beverage categories, Target said. Apparel and accessories comp sales are down more than 20%.
“Over the past few weeks, we’ve experienced an unprecedented surge in traffic and sales, as guests rely on our stores and same-day services,” according to Cornell. “Ensuring we can take care of our team and deliver for the millions of guests who are counting on us remains our top priority.”
“We know guests’ needs could change quickly as things evolve,” he explained in the Q&A, “so our teams are carefully monitoring the situation, ready to be flexible and adjust.”
Stronger-than-expected quarter-to-date sales have fueled gross-margin dollar growth above projections, but a continuing fall-off of sales in higher-margin discretionary categories could squeeze gross-margin dollar performance in the rest of the quarter, Target pointed out. The retailer also said it expects to add incremental costs of more than $300 million in the quarter from coronavirus-related investments in pay and benefits, merchandise volume in stores and the supply chain, and more rigorous cleaning in stores and distribution centers. Target added that it has upheld everyday low pricing during this period.
Because of the uncertain outlook for shopping patterns and government policy as the COVID-19 crisis unfolds, Target has pulled its prior financial guidance for the 2020 first quarter and full year. The company also is suspending share repurchases.
“During these unprecedented times, the benefits of our strong balance sheet and diverse, multicategory assortment are particularly important,” said Michael Fiddelke, executive vice president and chief financial officer. “With the best team in retail focused on serving our guests, and ample financial capacity to navigate a highly uncertain outlook, we are confident that Target will emerge from the current environment with an even stronger guest relationship and continue to operate from a position of financial strength.”
Jefferies analyst Christopher Mandeville said Target is doing what it needs to do in the present business environment.
“Given the need to prioritize the allocation of resources, which we believe is certainly the correct move, Target is reducing its planned remodel program for fiscal 2020 to 130 from about 300, with the difference being pushed into fiscal 2021. Similarly, management is moderating its new small-format builds to 15 to 20 from 36,” Mandeville wrote in a research note on Wednesday. “Lastly, Target has made the tough choice to delay incorporating fresh grocery and adult beverages into the company’s Drive Up and Order Pickup services for the time being. As it’s only a delay, we continue to believe Target remains well-positioned long term from an omnichannel perspective, as consumers are increasingly engaging with retailers in such a fashion.”
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