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Target invests in cheap chic as sales slow

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An increased number of mannequins feature clothing and shoes throughout the remodeled Target store in Orange, California.

Jeff Gritchen | MediaNews Group | Getty Images

NEW YORK – As Target sees growth slowing in sales and customer traffic, the company said Tuesday it will spend between $4 billion and $5 billion in the coming fiscal year to offer fresh merchandise, new services and faster delivery.

Target aims to launch or expand more than 10 private label brands, open about 20 new stores and offer curbside delivery to shoppers who won’t have to leave their cars. The company plans to remodel about 175 existing stores. It also intends to expand a network of hubs that make it cheaper and faster to get online orders to customers.

“In an environment where consumers are making tradeoffs, more of the same is not going to get it done,” Target Chief Growth Officer Christina Hennington said Tuesday at an investor event in New York.

She said the retailer’s newer and trendier products are the ones that keep selling, even as inflation pushes shoppers to pay closer attention to their spending.

Target, which reported fourth-quarter earnings Tuesday, shared details about its strategy to attract shoppers who have become more reluctant to spring for the discretionary merchandise they bought during the first two years of the Covid pandemic.

Target plans to offer more items at lower price points, such as $3, $5, $10 and $15. It kicked off the year stocked up on everyday essentials like food or cleaning products. Inventory in discretionary categories fell about 13% compared with a year ago.

“Given value is absolutely top of mind right now, being able to deliver affordable joy differentiates us in the marketplace,” CEO Brian Cornell said. “And that’s a clear advantage in the near term and remains our focus over the long term.”

A shopper entering a Target store in New York.

Scott Mlyn | CNBC

The retailer’s dilemma

Target plans to spend less on capital expenditures than this past fiscal year, when it spent $5.5 billion. Its goal for store projects is also slightly lower compared to the 23 new stores and about 200 remodels it announced for fiscal 2022.

The company’s investment plans underscore a dilemma that other retailers face, as well: As the economic backdrop remains uncertain and high inflation persists, companies will have to get creative and work harder to win over customers — or risk steeper sales declines.

Other retailers’ plans reflect that challenge, too. Walmart and Home Depot‘s forecasts both anticipate a slowdown, yet both companies recently announced wage increases to attract and retain store workers. Home Depot said it will spend $1 billion on workers’ wage increases to help boost customer service, even as it projected approximately flat sales growth for the fiscal year.

At the same time that Target is investing, it is also trimming back costs in other areas. In November, it said it aimed to reduce up to $3 billion in total costs over the next three years, saying it wanted to become more efficient after its revenue grew about 40% since 2019.

Target is one of many retailers that dealt with whiplash over the past year, as shopping patterns changed dramatically, said Jessica Ramirez, a senior retail analyst at Jane Hali & Associates. She said retailers realized, once again, they must listen to customers, stay nimble and “future-proof” their businesses.

“You have to really pay attention,” she said. “If apparel isn’t moving well, what are the categories where things are moving? Are they [customers] going to walk in for groceries and then if they see something for return to office and it’s a good price, they’ll pick it up?”

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