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In an address to an investor’s conference, the CEO of Target, Brian Cornell announced that the company would spend $2 billion in fiscal 2017 and a total of $7 billion over three years to increase traffic and sales volume. The proposal includes upgrading stores, opening small format units and above all reducing prices.
Cornell requested patience from investors stating, “We are investing to win share, not surrendering.” He added, “There will be winners and losers in this new era in retail. This plan is all about coming out on top.”
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Projections for fiscal 2017 include a reduction of $1 billion in operating margin resulting in a projected earnings per share of $3.80 to $4.20 lower than analysts’ expectations of $5.34.
Target has struggled since receiving adverse publicity in 2013 concerning the security breach and intense competition coupled with food deflation. Despite initial optimism after the appointment of Brian Cornell, growth in sales and margins have both deteriorated, questioning whether Target has adopted appropriate strategies to compete with Walmart stores and lower priced regionals.
Quoted in the Minneapolis StarTribune, Amy Koo, analyst with Kantar Retail stated, “Their strategies aren't really different from what they were before except for lowering prices.” She added, “I don't really see the thing that's going to move the needle.” Brian Yarbrough, an analyst with Edward Jones stated, “I felt for sure Cornell was going to address groceries, I feel like that shows they still don't have a concrete plan about what they're going to do about it.” “Target issues are not solely price related” according to Neil Saunders an analyst with GlobalData Retail.