Target has emerged as one of the winners of the pandemic in the US. While digital growth accelerated 145% to account for almost 18% of sales last year, its physical store network was central to this, fulfilling over 95% of digital sales. This year, Target will continue to grow its presence across the US with 40 new stores as it continues to enhance its omnichannel strategy.
Increasing capex to $4bn
Starting this year, Target is increasing its annual investment in the business to $4bn, up from the $2.5-3.0bn range of recent years. This will include initiatives to improve and expand its store network. Following the opening of almost 30 new stores last year, the retailer plans to open 40 this year, most of which will be smaller format concepts (around 2,600 SQ M). The retailer will also continue with its programme of hypermarket remodels, aiming to complete 150 this year and ramping up to 200 per year from 2022. Many of these will enable it to bring its brand partnerships to life, including the debut of its tie-up with Ulta Beauty.
12 new stores launched in April
The opening plans are off to a strong start with 12 new stores launching in April. Target’s suite of digital services are an important element of these stores, with many offering order pickup and drive up. Its smaller format stores, coupled with its range of delivery and pickup services, provide customers with improved access to its offer. This approach brings significant benefits to the business. Over time, multi-channel shoppers spend on average nearly 4x more than a store-only guest and nearly 10x more than a digital-only shopper.
Potential to pick up the pace of openings
Since the launch of the first small format Target store in Minneapolis in 2014, the retailer has expanded to format over 120 locations. This has been the core growth format for the retailer for several years. Looking ahead, only a limited number of conventional Target stores expected to open in the next five years. However, physical store growth is an important component of its plan, contrasting with many other retailers, especially non-food operators, who are rationalising their networks and directing most of their spend into digital initiatives. While we expect the retailer to continue pushing ahead with 30-40 new smaller format openings annually over the next few years, the business could take advantage of the increased availability of retail space due to the pandemic to build a stronger pipeline of development.
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