The coronavirus pandemic has forced Target to rewrite its ambitions for 2020 and revise recently released plans for store remodels, small-size outposts and more.
On Wednesday, the mass-market retailer announced that it will now revamp 130 stores this year, down from the original 300 planned. While remodels in progress will proceed, the balance will be shifted into 2021. Fewer small-format stores, meanwhile, will join Target’s fleet. Instead of launching 36 new shrunken stores, the retailer is eyeing 15 to 20, it said.
The landscape has shifted rapidly in recent weeks as the outbreak of COVID-19 has upended shopping, business activity and social engagement. While retailers primarily selling discretionary products like apparel and footwear has been forced to temporarily close down stores, business is booming at Target, chairman and CEO Brian Cornell acknowledged when addressing the change in strategic initiatives.
“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,” Cornell said. “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.”
The data offers a glimpse of what’s been happening at Target. Early in the first quarter, comparable sales and categories were performing as expected. By the tail end of February into early March, traffic and comp sales began to creep up, with February’s full-month comp sales up 3.8 percent, Target said.
By the middle of March, pandemic-induced shopping behavior had kicked into full swing, with Target seeing a stronger surge in traffic and sales, primarily in essentials and food and beverage—the kinds of products core to stockpiling and panic buying. Sales growth in categories like home office and entertainment—which naturally dovetail with consumers now spending the vast majority of their time isolating indoors—also trended up.
However, “performance [that] softened meaningfully in apparel & accessories” offset some of that growth. Though March comp sales to date are up more than 20 percent year on year, comps for apparel and accessories plunged more than 20 percent in the same frame as consumers scale back their discretionary spending given the economic uncertainty.
Target also warned that while it has maintained its everyday low prices so far and saw stronger-than-expected quarter-to-date sales leading to gross margin dollar growth, continued sales declines in higher-margin discretionary categories like apparel and accessories “could result in lower-than-expected gross margin dollar performance for the balance of the quarter.”
Target also joined the list of retailers that have suspended share repurchases to save cash on their balance sheets. And the company retracted its prior first-quarter guidance in light of the changing economic outlook—and additional costs.
Like its fellow big-box, general-merch peers, Target is—among other things—investing in the store staff who have kept operations ticking while shoppers have stripped shelves bare of must-have goods in recent weeks.
Target recently bumped hourly pay for full- and part-time store staff and distribution centers by $2 through May 2. That’s one of the factors driving “more than $300 million of incremental costs” to Target’s prior first-quarter outlook, it said, along with higher merchandise volumes in stores and in the supply chain. Expanded store hours, which help ensure workers can clean and sanitize facilities in accordance with federal health guidelines, are also included in those costs.
The retailer also has earmarked bonuses for frontline team members, including for the first time financial incentives for the “20,000 hourly store team leads who manage individual departments in its stores across the country.”
Benefits are getting an upgrade as well. On Wednesday, Target unveiled a new option for workers 65 and older, pregnant, or those with underlying medical conditions to access paid leave.
Target plans to “continue to carefully monitor the situation in the coming weeks and months and will visit the timing of its strategic initiatives after shopping returns to a more predictable pattern.” Plans to incorporate fresh grocery and adult beverages into Target’s Drive Up and Order Pickup services are on hold for the time being.
Emphasizing Target’s strong balance sheet and diverse, multi-category assortment as among its assets going forward, chief financial officer Michael Fiddelke expressed confidence that “Target will emerge from the current environment with an even stronger guest relationship and continue to operate from a position of financial strength.”