Target bets on $5B store revamp plan to revive sales
Minneapolis retailer plans new large-format stores and remodels despite traffic decline and Walmart gaining ground
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Target is moving forward with plans to expand its footprint through new, larger-format stores despite weak sales.
The Minneapolis-based retailer announced last week during its earnings call that it will invest billions to upgrade existing locations and open additional large-format stores as it works to reverse its sales slump and return to profitable growth.
The company will raise capital expenditures – the money it invests in long-term assets like technology and infrastructure – to $5 billion in the next fiscal year, a 25% increase or roughly $1 billion more than in 2025.
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Incoming CEO Michael Fiddelke said the company will use the increased capital spending to upgrade its supply chain, technology, and the key layouts of its sales floors. He added that the improvements will strengthen Target’s merchandising strategy and enhance the in-store shopping experience.
Michael Fiddelke will replace Brian Cornell as CEO in February. (Elizabeth Flores/The Minnesota Star Tribune via Getty Images)
Fiddelke said the investment will also go toward building new large-format stores, which he told analysts "are outpacing our initial sales expectations and continue to be a strong source of growth." Given the company's current real estate opportunities, Fiddelke said Target expects "to continue opening these bigger boxes in more and more markets across the U.S."
"Our investments in new stores, store remodels and chain-wide category changes are aimed at providing greater inspiration and joy for our guests every time they shop," he added.
It's part of a strategy Fiddelke, who will replace Brian Cornell as CEO in February, is using to steer the embattled retailer toward a more profitable future. Fiddelke has been credited with being instrumental in building many of the company’s core strengths, holding leadership roles across merchandising, finance, operations and human resources.
Target will invest billions to upgrade existing locations and open additional large-format stores. (David Paul Morris/Bloomberg via Getty Images)
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But he has a long road ahead in the turnaround as the company reported another quarter of declining traffic and sales at stores last week. It was a stark contrast to rival Walmart, which reported higher sales across categories even as consumers remain cautious in a challenging economy.
Robby Ohmes, senior retail analyst at Bank of America Securities, told FOX Business that that gap between Walmart and Target is widening. He noted the contrast between Walmart’s 5% gain in apparel sales last quarter and Target’s 2.7% decline in store sales, driven by weaker demand in discretionary categories such as home and apparel.
Target will raise capital expenditures to $5 billion in the next fiscal year. (Mario Tama/Getty Images)
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Ohmes credited Target for its global sourcing operation, saying how analysts see it as possibly one of the best in the world, which allows it to produce high-quality private-label apparel and home goods at strong prices. Ohmes said management may be focusing investment on merchandising and store remodels to better showcase those products rather than on automation or technology.
But while refreshing stores is necessary, he said it's not enough. It is critical that Target also strengthens its digital, automation and supply-chain capabilities to stay competitive with Walmart, which has been making a lot of automation investments to catch up to Amazon, according to Ohmes. He noted those investments have been paying off.
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| TGT | TARGET CORP. | 84.54 | -3.08 | -3.52% |
| WMT | WALMART INC. | 104.06 | -1.26 | -1.20% |
| AMZN | AMAZON.COM INC. | 226.28 | +5.59 | +2.53% |
"You need to have really strong digital as well because your largest and closest competitor, Walmart, has that digital strength. That digital strength is gaining share. The flywheel of Walmart is taking share," Ohmes said.
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He noted that Walmart’s marketplace is not only vast but gives the company valuable insight into what products are selling well.
"They have 700 million items on that marketplace so they can figure out, ‘Oh, this is what we’re seeing people buy,'" he said, adding that Target doesn't have that benefit since it has a much smaller marketplace.