(Bloomberg Opinion) – There is an old saying in retail that, despite all the turmoil at Christmas, doesn’t really change: those business groups that win continue to do so while the losers continue to suffer.
The Target Corp. just became an exception to this rule.
The big box dealer has shown a consistently strong performance in recent years, but has stumbled a lot in the last Christmas season. The same branch sales rose by only 1.4% in November and December – well below expectations. The stock dropped more than 6 percent in morning trading.
Target appears to be suffering from problems in the market. But when the company – one of the more resilient companies – feels a pinch, it is a sign of weaker retail chains or of companies that are less proactive in changing consumer tastes. The slip also suggests that there could be limits to how much more turnaround efforts can achieve.
Electronics sales in the same store decreased more than 6%. This wasn’t supported by an unimaginative technology line – there wasn’t a great standout game or device. Toys were also a difficult area and there were signs in Europe that demand is shifting from traditional toys to technical things.
But Target made a big bet on toys to attract customers who had previously bought from Toys R Us. Although it said it has gained share over the holidays, this seems to be a rare misstep if demand permanently turns away from this category. Given Target’s high level of investment – which pledged in 2017 to invest $ 7 billion in its stores, products, and online offerings over a three-year period – it should outperform even in these more demanding categories.
The only silver lining is that both toys and electronics are low-margin segments. Although Target lowered its forecast for the same sales growth in the fourth quarter from up to 4% to 1.4% from its previous expectations, it maintained its profit forecast for the last quarter and the whole year.
What worries Target’s performance is that in the run-up to the holiday, given the hard-fought landscape and Black Friday’s fall, it could generally do the right things. It is one of the few retail companies that invests to offer consumers the products they actually want to buy. In areas such as clothing, beauty, and groceries, where the exclusive brands and overhaul departments were revived, sales in the same store increased.
As previously mentioned, Target has also spent on the renewal of its businesses. This may not be intuitive, but it makes sense. When consumers want to go to a point of sale, it is a pleasant experience. And it hasn’t neglected its digital offerings, especially in areas like “click and collect” where customers order online but pick up their purchases in a store. While digital performance was disappointing – only 19% in November and December – same-day delivery options increased by 50%.
Even before the Christmas season, Target was faced with the challenge of maintaining the momentum. It is entering the last year of its major renovations and will face difficult sales comparisons in the future. But a tricky response, such as restricting investment in stores, products, and digital media, would be a mistake. It probably has more to do with groceries and can generate more sales from department stores and medium-sized clothing brands.
That doesn’t make Wednesday’s disappointment any less worrying.
To contact the author of this story: Andrea Felsted at [email protected]
Contact the editorial team responsible for this story: Beth Williams at [email protected]
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Andrea Felsted is a Bloomberg Opinion columnist dealing with the consumer and retail industries. Previously, she worked at the Financial Times.
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