Target to Cut Thousands of Jobs, Invest $1 Billion in Supply Chain & Technology
Target plans to save $2 billion over the next two years as part of its efforts to grow and increase profitability, with savings coming through operations, technology and process improvements; supply chain and sourcing efficiencies and restructuring.
U.S. retailer Target Corp, which has been battling back after a massive data breach and sluggish performance, on Tuesday said it will eliminate several thousand jobs, mainly from headquarters locations in the United States and India, as it aims to cut $2 billion in costs over two years.
The cost-cutting forms a key plank of a revival plan outlined by Chief Executive Officer Brian Cornell, who has sought to narrow the retailer’s focus to a handful of product lines where Target believes it has an edge on quality and price while also investing to catch up with rivals online.
Cornell said Target’s management needs streamlining and he wants to change the corporate culture from one focused on process to one that meets the demand of customers. Target said it was revamping its merchandise, in part to attract both millenials and Hispanics, seen as important to driving future sales growth.
“We know that to compete today speed and simplicity are critically important,” Cornell told a meeting of analysts in New York. “Executing on this plan will translate to growth.”
Target’s transformation roadmap includes the following areas of focus:
- The retailer is taking a channel-agnostic approach to growing its business, driving a total Target experience across stores, online and mobile. Customers who shop Target in stores and online generate three times the sales compared to customers who shop in stores only. Throughout the week of Black Friday last year, Target received 400,000 store pickup orders, and orders fulfilled in stores accounted for half of the retailer’s digital traffic in the four days leading up to Christmas, Tesija added. What’s more, 35 percent of guests who picked up a digital order also shopped the store during the same visit.
- Continued enhancements in technology, supply chain and inventory management will create a shopping experience that is rooted in ease and inspiration. This will help spur Target’s continued annual growth in digital channel sales of 40 percent, as well as contribute to a total projected sales growth of 2 to 3 percent and comparable sales growth of 1.5 to 2.5 percent in 2015.
- Style, Baby, Kids and Wellness are being prioritized and will be the merchandise categories Target hopes to be famous for – the company will invest in these areas with a focus on newness and differentiation. In 2014, these four categories accounted for more than a quarter of Target’s sales. Other categories, including Grocery, are being repositioned to deliver a more compelling and appealing shopping experience.
- Target will create a more customer-centric experience by tailoring its assortment and offering more locally relevant products, with demographics, climate, location and other customer-led factors driving merchandising decisions. Additionally, Target will strengthen its data and analytics and technology capabilities to deliver more personalized digital experiences, loyalty programs and promotional offers.
Target said the job cuts would primarily come from corporate locations in the Minneapolis area and in India that collectively employ about 26,000 people, and not from its roughly 1,800 stores across the United States.
Target also said it would invest $1 billion in technology and to upgrade its supply chain. It expects profit margin, as measured by earnings before interest, tax, depreciation and amortization, to hold steady at between 9.5 percent to 10 percent over the next five years, from 9.5 percent last year.
Target’s shares closed up 32 cents, or 0.4 percent, at $78.00, after initially falling 2.2 percent after the company gave its outlook on Tuesday.
Cornell, a former Wal-Mart Stores Inc and PepsiCo executive, has moved quickly since taking the helm in August in the wake of a massive breach of customer data in late 2013 that cost former CEO Gregg Steinhafel his job.
His biggest decision to date, announced in January, was to pull out of the Canadian market, swallowing a $5.4 billion loss.
Cornel also halved the threshold on free shipping, undercutting Wal-Mart and others in the war for online customers, and is focusing investment on a handful of “signature” categories, including apparel, home goods and beauty products. On Tuesday Cornell outlined plans to improving Target’s offering of organic and other food offerings to boost its grocery business, which accounts for one-fifth of overall sales.
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