Target spent billions on a move that Wall Street hates, and now it's paying off in a big way

  • Wall Street slammed Target’s decision last year to invest $US7 billion in a plan that involved remodeling 600 stores when many of its competitors were closing locations.
  • Now shopper traffic to Target stores is growing faster than it has in more than a decade.
  • The number of shoppers visiting Target stores jumped by 3.7% in the most recent quarter.

Target’s massive investment in its stores appears to be paying off.

In the most recent quarter, the number of shoppers visiting Target jumped by 3.7%, marking the strongest quarterly growth of that metric in more than a decade. Same-store sales grew by 3%, compared with a 1.3% decline in the period last year.

In February 2017, Target CEO Brian Cornell announced a $US7 billion spending plan to remodel 600 stores, open new small-format stores, and grow its private-label brands.

Wall Street initially slammed Target for investing in stores as many of its competitors shuttered locations, sending shares lower by more than 12% immediately following the announcement.

But the investment is working, according to Neil Saunders of GlobalData Retail.

Target’s stores contributed 1.9 percentage points to the company’s comparable sales growth, making them the lead driver of its success, he said.

“In our view, this completely justifies Target’s decision to focus on and invest in stores – a step that was criticised by some at the time it was announced,” Saunders wrote in a note to clients.

“The store enhancement program is proceeding well, and refurbished outlets provided an elevated experience which is easier and more pleasant to shop. Displays are more compelling and inspirational, which, in turn, drives purchasing,” he wrote. “Our customer data show that customer satisfaction at refurbished and newer stores is running significantly higher than at older units.

“There is no doubt that investing in stores was an expensive decision, but we believe these numbers show it was the right move to make.”

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