Target’s financial results reinforce direction of retail industry in 2017
Target reported its full year financial results a couple of weeks back, and the screaming reality from the results is absolutely clear – rise of digital commerce.
Brian Cornell, chairman and CEO of Target explicitly highlighted this trend. He mentioned “Our fourth quarter results reflect the impact of rapidly changing consumer behavior, which drove very strong digital growth but unexpected softness in our stores“. Though the softness in the stores performance may seems unexpected considering the brand name Target commands, the signs for this trend have been in making since half of past decade. Here are some recent articles exhibiting the troubling state of US retail industry:
While Target’s 2016 year definitely showed positive net cash flow ($1.9 Bn), what spooked investors was the 1st decline in annual revenues in last 4 years from $73.6 Bn in 2015 to $69.49 in 2016. A part of this decline was sale of pharmacy segment to CVS in late 2015, however same store sales have also seen decline. And this would continue the trend in Q1 and Q2 of 2017 (as reported by Target). The stock of Target (TGT) has definitely taken this to chin, closing recently at $54. This is a level which has not been seen since 2012 on TGT stock.
Target’s positioning for future through its strategic investments:
The light at the end of the tunnel however is the growth of the digital sales. Target reported digital sales to be up by 34% from previous year. The % increase in this metric is higher than similar sales growth exhibited by Walmart or Amazon. However, the proportion of e-commerce for Target was not enough to ward off the annual decline in revenues. One of the key digital initiatives which Target has undertaken in recent times is launch of CartWheel app. This mobile app provides consumers in-store discounts on specific items. Combined with Target Red Card, it incentives consumers to shop at Target instead of other online retailers, such as Amazon.
What Target intends to do going forward is opposite of what most retailers are doing. Top on agenda is to increase retail presence by opening more stores and invest in revamping of existing stores. Also other key areas of investment include inventory management upgrades and digital operations, which exhibits confidence of leadership in enabling turnaround from this low.
Do you believe we would see Target’s turnaround from this low, of is this a start of downtrend. Leave comment to share your opinion!