By Khadeeja Safdar
Target Corp. expects to get more with less. The
Minneapolis-based retailer, under pressure after issuing a dismal
profit warning for the year, has passed on potential acquisitions
to focus on improving in-store sales and online margins.
The shift comes as competitors like Wal-Mart Stores Inc. are
investing heavily in e-commerce operations, snapping up companies
to help diversify their offerings. Target, meanwhile, has revamped
some e-commerce projects, cut ties with digital partners and walked
away from prospective deals, according to people familiar with the
talks.
Target says it isn't looking to be a soup-to-nuts retailer.
"We're not trying to be the catalog of everything," said digital
chief Mike McNamara. "We aren't going to add products to our
website and stores just because they exist."
The company has been squeezed in recent years by Amazon.com Inc.
as shopping moves online, and by Wal-Mart, which has remodeled
stores and lowered prices. Sales at Target stores open at least a
year have fallen for three straight quarters. In February, the
company said its 2017 profit could be as much as 25% lower than
Wall Street estimates.
Target's stock has fallen about 20% this year, while Wal-Mart's
has climbed 11% and Amazon is up 27%. Target is slated to report
first-quarter results on Wednesday.
As those two companies have expanded into new product categories
or bought businesses, Target has been more cautious. It remained on
the sidelines when Wal-Mart paid $3.3 billion for discount retailer
Jet.com last fall. Executives considered Jet overpriced and a poor
fit with Target CEO Brian Cornell's strategy to focus on
high-margin categories such as apparel and home décor, according to
people familiar with internal discussions.
Instead, Target pursued a more traditional deal. The retailer,
which has struggled with declining sales in its food department,
was in advanced talks last summer to buy Sprouts Farmers Market
Inc., a Phoenix-based chain of about 250 grocery stores. But it
eventually walked away, people familiar with the discussions say.
Sprouts declined to comment.
More recently, it looked into acquiring an e-commerce player,
including Boxed.com, an online service offering household
essentials in bulk, people familiar with the discussions say. Talks
with Boxed didn't go anywhere, the people say. Boxed, which has
raised more than $130 million in funding, didn't respond to
requests for comment.
"Thinking about possible mergers and acquisitions is something
we do every day as a regular course of business," said Mr.
McNamara, who joined Target in 2015 and took over digital
operations last September.
Target has been a latecomer to some aspects of e-commerce and
digital remains only a sliver of company sales. Its online business
generated about $3 billion last year, accounting for 4.4% of total
sales. Digital sales grew 27% in 2016, falling short of Target's
goal of 40% growth.
The company outsourced nearly all of its online operations to
Amazon in 2001, before ending the relationship in 2011. Last year,
it built a new infrastructure for its website after experiencing
technical problems during busy shopping times.
Target has begun to centralize decision-making for digital
projects. Earlier this year, it eliminated an in-house startup that
was developing a marketplace for third-party sellers. The platform,
internally called Goldfish, was to feature products from outside
sellers and function separately from Target.com, according to
people familiar with the project. Such marketplaces account for a
substantial portion of the merchandise now sold on Amazon.com and
Walmart.com.
People hired to work on Goldfish estimated it would generate $1
billion in sales over three years, but Target pulled the plug after
learning about its weak holiday results. Engineers who had been
hired at its Sunnyvale, Calif., office a few weeks earlier were
laid off, the people said.
Target also dissolved a partnership with Curbside, an app for
picking up orders outside stores. Other projects, including a
robot-enabled store prototype and a food-research lab, were also
axed. The company's chief strategy and innovation officer, Casey
Carl, departed earlier this month after nearly 20 years at the
retailer. Target's marketing, digital and grocery chiefs have also
left the company in the past year.
Under Mr. McNamara, Target is moving forward on select digital
initiatives. The company is working on its own curbside-pickup
service, according to a person familiar with the plans. Executives
have also discussed the possibility of developing another
marketplace with a limited selection of products.
Target has been testing a program that would let customers fill
up a box and have it delivered within two days for a flat fee. Last
week, it increased the shipping minimum from $25 to $35 -- matching
Wal-Mart. Both changes are aimed at encouraging customers to buy
more items at one time, thereby lowering the retailer's shipping
costs.
But executives have moved much of their attention to restoring
store traffic, which has fallen as customers shift to online
shopping. Target plans to invest $7 billion over the next three
years to improve stores, launch exclusive brands and develop
digital and supply-chain capabilities. It also expects to sacrifice
about $1 billion of potential profit to lower prices and drive
lower-margin digital sales.
"The future of retail is digital, but people will also be
shopping in stores for a long, long time," Mr. Cornell said at a
conference in March. "Our focus on innovation has to be something
we can realize over the next three or four years inside the core
business."
Write to Khadeeja Safdar at khadeeja.safdar@wsj.com
(END) Dow Jones Newswires
May 15, 2017 07:14 ET (11:14 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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