Target Places $7B Bet on Overhaul of Existing Stores

While most of the retail industry is focused on scaling back their brick-and-mortar presence, Target said earlier this week that their stores, both existing stores and small-format stores to come, will be critical to the growth of the company’s core business.  Given the current trend of shopper’s focusing more and more on e-commerce websites to satisfy their shopping demands, many analysts wonder if the company should consider first shutting down of its low performing assets to free up funds for the many ambitious projects the retail giant has planned.

During the company’s financial community meeting, Target outlined its strategy for the future, which includes a $7 billion investment over the next three years. In that time, the company plans to revamp more than 600 of its approximately 1,800 locations, and open more than 100 small-format stores.

The small-format stores will be focused on metropolitan areas with large populations and college campuses. Thirty of these stores will open in 2017. Target began rolling out smaller stores in cities in 2012, and opened 13 of them in places like Chicago, New York and Philadelphia in 2016. The company is also revamping its supply chain and the way merchandise moves across its network.

The focus on growing stores is a departure from the store closures we’ve heard from major retailers like J.C. Penney, Macy’s and Sears.   While analysts are generally supportive of the changes that Target outlined, some believe a few closures could be a good thing:

“We do have some concerns that Target should consider more aggressively seeking to prune lower productivity stores despite the fact that they are likely cash flow accretive and profitable on a four-wall basis,” said Cowen & Co. in a note published Tuesday. “If this is conducted thoughtfully, store pruning/closing can drive a better overall brand experience, free up capital investment for more productive stores, and improve resource allocation.”

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