As the retail landscape continues to evolve, companies must adapt to changing consumer behaviors and market dynamics. Target, one of the leading big-box retailers, recently made headlines with its decision to shutter several stores across the country. This move has sparked discussions about the challenges faced by brick-and-mortar retailers and the strategies they employ to stay competitive in a rapidly changing industry.
The Background: Target’s Store Closures
In recent years, Target has faced a series of setbacks, including high levels of theft and safety risks, which the company cited as the primary reasons behind its store closures. The closure of Target’s store in Harlem, New York City, a location that held significance as the retailer’s first store in Manhattan, marked a turning point for the company. In total, Target closed nine stores across various cities, including New York, Seattle, Portland, Oregon, and San Francisco.
These closures came at a time when sales were stagnating, and the company was grappling with the aftermath of the COVID-19 pandemic. However, Target’s Chief Operating Officer, John Mulligan, emphasized that the closures should not be seen as a sign of the company’s retreat from these markets. Instead, he highlighted the company’s history of opening and closing stores strategically to optimize its presence in different locations.
Evaluating Market Opportunities: Target’s Growth Strategy
In the face of recent challenges, Target remains committed to finding new growth opportunities. Mulligan emphasized that the company sees “lots more opportunity to grow in New York” and other cities, despite the closures. He pointed to the success of Target’s expansion in its hometown of Minneapolis-St. Paul and Chicago as evidence that store closures do not signal the end of the company’s growth trajectory.
Target’s approach to evaluating and closing stores is not unique; it is a routine part of operating a company. Mulligan acknowledged that some locations simply do not work for various reasons. In the case of the recently closed stores, Target determined that they were no longer safe for employees and customers.
Greg Melich, a retail analyst at Evercore ISI, noted that the closures represent a significant challenge for Target. The company must focus on winning back customers and regaining its momentum. While theft and safety concerns may have contributed to the underperformance of these stores, the fundamental problem lies in reestablishing Target’s connection with its customer base.
The Bumpy Ride: Target’s Recent Challenges
Target’s recent struggles are reflected in its stock performance and sales figures. The company’s shares have fallen by approximately 27% this year, significantly trailing behind the performance of the broader market. Target revised its full-year forecast in August, projecting a decline in comparable sales and earnings per share.
Like many other retailers, Target has faced softer sales due to various factors. The stimulus-fueled shopping spree during the pandemic has subsided, leaving consumers with less disposable income. Additionally, inflation has forced shoppers to tighten their budgets, leading to reduced spending on discretionary items. Target also grappled with inventory management issues, backlash over its Pride collection, and losses from theft and organized retail crime.
The Path to Recovery: Target’s Strategies
Target’s CEO, Brian Cornell, acknowledged the challenges the company faces and outlined its strategies to overcome them. He noted that consumers are feeling the pinch of inflation on everyday items such as baby formula and pet food, leading to a decrease in grocery purchases. Cornell anticipates continued caution among consumers as they manage their budgets, affecting their spending patterns in the coming years.
To drive sales during the crucial holiday season, Target plans to focus on affordability and introduce fresh items that inspire customers to make purchases. However, some analysts, such as Michael Baker from D.A. Davidson, anticipate that Target may struggle to meet revenue expectations for the third quarter and face a more challenging holiday season compared to its competitors.
One of the factors contributing to Target’s challenges is the composition of its merchandise. Unlike Walmart, which derives more than half of its annual sales from groceries, Target’s product mix leans heavily towards discretionary items. This reliance on non-essential purchases can make it more challenging to weather economic downturns or periods of budget constraints.
Target’s Store Dilemma: Balancing Urban and Suburban Presence
As Target navigates its way through the current retail landscape, it must make strategic decisions about its store locations. The closure of high-profile stores has raised questions about the company’s commitment to city centers, where rents are typically higher, and foot traffic may be less predictable due to hybrid work models.
The pandemic and demographic shifts have prompted some retailers to exit major cities and traditional malls. Nordstrom, for example, closed its San Francisco flagship store but expanded its off-price banner, Nordstrom Rack, in suburban strip malls. Macy’s has also shifted its focus to locations outside of malls and into suburban strip centers.
Demand for retail real estate has undergone a transformation, with availability in suburban areas becoming tighter than in urban areas. Grocery stores, hailed as the “front-line heroes of the pandemic,” have become desirable neighbors for many retailers. The convenience and necessity of grocery shopping make these stores a reliable source of foot traffic, even during challenging economic times.
Within cities, retailers are making strategic moves, shifting from areas with higher crime rates to neighborhoods with more foot traffic, newer spaces, or lower rent. Target, too, aims to strike a balance between suburban and urban locations. For instance, the company plans to expand its presence in Charlotte, North Carolina, in response to the city’s population growth. Similarly, Target aims to capture business from tourists in New York City by opening more locations.
Adapting to Changing Consumer Behaviors
Target’s store closures and subsequent openings reflect the company’s commitment to adapt to changing consumer behaviors and market conditions. The retail landscape has undergone significant shifts in recent years, driven by technological advancements and evolving consumer preferences.
Target recognizes the importance of its physical stores in supporting its online business. More than 90% of the company’s online orders are fulfilled through its store locations, rather than distant fulfillment centers. This integration of online and offline operations allows Target to provide efficient and convenient services to its customers.
In response to recent closures, Target has opened new stores in various locations across the country. The company aims to strike the right balance between expanding its footprint in suburban areas and maintaining a presence in urban centers. By evaluating market opportunities and adapting its strategies, Target seeks to position itself for growth and continued success.
See first source: CNBC