Target has added another goal, it has planned on increasing its annual spending on technology and supply-chain initiatives to as much as $2.5 billion a year by 2017, sharply higher than the $1.4 billion spent last year. At a presentation to investors on Wednesday, executives highlighted a major effort to transform Target’s logistics operations to speed delivery of online purchases while keeping store shelves better stocked.
“These are the things that make Target work,” Chief Executive Brian Cornell said at its annual financial community meeting here. “These are the building blocks of our future. And these are the things that will drive growth at Target for years to come.”
The plan includes looking at issues including big changes in how Target will use its warehouses to fulfill online orders and seemingly small details such as ordering the optimal-sized packs of each product so they are easy for workers to unload on shelves.
“Over time, we’ve been adding stress and complexity to systems that frankly were built for another time,” said John Mulligan, Target’s chief operating officer.
Target expects its spending on capital expenditures such as these to increase to $1.8 billion in 2016, and then the company plans to further ratchet up spending in 2017 and beyond to between $2 billion and $2.5 billion a year.
Although those behind-the-scenes changes may not be especially visible to Target shoppers, some of the retailers’ other big bets for 2016 surely will: Target will be making an effort to improve its $18.5 billion grocery business, a category that chief executive Brian Cornell said has previously left guests “underwhelmed and disappointed.”
This year, Target will be working to improve its assortment of fresh grocery items, in particular. But Cornell told reporters Wednesday that executives are doing an item-by-item evaluation “from the grove to the shelf” on how to make sure customers see fresher food at Target.
“Turning this business around will be a multi-year effort, and it’s not going to be easy,” Targets chief executive Cornell said.
Target’s biggest rival, Wal-Mart Stores Inc., has forecast no growth this year. Best Buy Inc., based in Richfield, has said the same.
“Market research shows us that the lack of overall retail options on and around campus from basic apparel to fresh food —is a real concern,” said John Mulligan, Target’s chief operating officer.
Meanwhile, executives said an overhaul of Target’s grocery section is taking longer than expected. Last March, executives said they expected to roll out major changes in 2016. On Wednesday, though, Cornell said that he expects it will be a “multi-year effort.” He added, “It’s better to get it right than to get it done fast.”
He said that Target is practically going item by item to overhaul the assortment and assess its potential. Target continues to work on new merchandising initiatives. In June, it will launch a new kids apparel line called Cat+Jack, which Cornell said is expected to be a multi billion-dollar brand. It will replace its licensed brand Cherokee.
Target is aiming to increase sales by 1.5% to 2.5% this year and by at least 3% annually in 2017, at the same time cutting costs by trimming technology spending and the improving supply chain logistics.Target recently released a new line of gender-neutral decor for kids, and has been focusing on key grocery departments in an effort to attract more millennial customers.
“This isn’t a stop and go pick up some food,” COO John Mulligan told analysts. “It’s really about bringing the totality of Target to that neighborhood.”