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How will Target recover from poor sales? More small stores and new brands

After posting disappointing results, Target will embark on a $7 billion investment plan to attract and keep more customers.
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Mere hours had passed since Target announced its disappointing Q4 results before it revealed a plan to get back on the right track.

CEO Brian Cornell announced the company will invest $7 billion of capital and $1 billion of profits every year from 2017 onwards to "grow sales faster, gain market share, adapt to guests’ rapidly changing preferences and give them even more reasons to choose Target."

And here's how the company plans on doing that:

Lower prices

We mentioned this in our earlier story, but Target provided more detail behind the plan later on Tuesday.

We're not talking promotion-heavy, fire-sale price cuts. Target thinks they won't get more people through the doors until they truly "feel confident that they're making the most of their dollar."

"Over the years, we’ve piled on the promotions," Target says. "Now we’ll get back to increasing our focus on offering competitive prices across our entire assortment every single day."

This will mean a short term hit in profits, but Target thinks it could pay off in the long term if it means more customers and more purchases.

Apps merging

No more separate Target and Cartwheel apps. Cartwheel will be merged into the regular Target app later this year – which is probably long overdue. It's one part of what Target calls "enhancing the digital experience" as it tries to get more online shoppers.

Store revamps, and quicker distribution

With Twin Cities stores already in line for decor and layout revamps, Target says 600 more stores across the country are going to get the same between now and 2019.

But importantly for the growing online market, these revamped stores will double as "hyperlocal distribution centers," with backroom supply rooms not just being used to stock shelves but also fulfill online orders to local customers.

"It’s a win-win: Guests get their orders faster, and we’re operating more cost effectively," the company says.

More small stores

Know the Target Express in Dinkytown? Well Target is going to open some 30 more of them in 2017 alone, focusing on "dense urban markets" and college campuses for its small-format stores. It says getting to college students is important as they're starting to "develop brand preferences."

By 2019, it will operate more than 130 Target Express stores.

New brands

Following on from the success of brands Cat & Jack and Pillowfort, and linkups with fashion designers like Lilly Pulitzer, Target says it'll be introducing 12 "exclusive" brands to its apparel and home department over the next two years.

Will it work?

Time will tell, obviously, but Target's plans impressed retail expert Paula Rosenblum, of RS Research, who told GoMN that its focus on the long term is "great to hear from a public company," rather than making excuses for a bad run.

She says almost every retailer is struggling with in-store sales as more shoppers move online, so Target's sales aren't that surprising. With Target's online sales rising 34 percent, it's trending in the right direction.

Rosenblum is a fan of Cornell's pledge to cut back on promotions and focus on all-round value, saying: "I am not clear it will work, given the environment, but it’s certainly worth a shot. No one wins in this race to the bottom."

She also thinks it's a good move to focus on its core categories like apparel and home, as well as boosting its private label items, saying this is where Target will succeed rather than its struggling grocery division.

"A lot of retailers are drawn into the trap of 'grocery as a traffic driver,'" she says. "But it’s all commodities. It’s hard to stand out from the crowd, and too many competitors large and small. I do think a key is a re-focus on unique private label items in other categories."

Executives didn’t mention groceries at all during their presentation, but the Star Tribune reports analysts asked them about it, with Cornell saying he's still "very focused" on improving the grocery business and competitive pricing in the department.

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