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Why Target’s Hot Deals Could Hurt Margins

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Part 3
Why Target’s Hot Deals Could Hurt Margins PART 3 OF 4

Will Target’s Sales Rise on Price Reductions?

Lower pricing to win customers

Target’s (TGT) announcement that it will lower costs on thousands of products could spur sales growth by drawing value-driven shoppers to its store. Notably, pricing remains the key driver behind converting shoppers into buyers. During the first half of the current fiscal year, Target’s value pricing, differentiated offerings, and store remodeling have helped the company to make a strong rebound in sales. Besides lower prices, the strong performance of its digital arm further supports its top line and is meaningfully contributing to its comps, or comparable-store sales growth rate.

Will Target’s Sales Rise on Price Reductions?

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Going forward, the company’s digital initiatives—including in-store pickup and fast delivery—coupled with lower pricing, are expected to boost the overall sales growth rate. Earlier, the company announced its acquisition of Grand Junction, which is further expected to strengthen its delivery capabilities and reduce delivery time, accelerating digital sales. It also positions the company to compete better with Amazon (AMZN) and Walmart (WMT), which have been investing billions of dollars into the business to grab a greater share of shoppers’ wallets.

Outlook

As we stated above, the company’s growth initiatives are expected to boost its sales growth rate. However, increased competition and moderating industry growth are likely to restrict its sales growth rate in fiscal 2017. Management earlier forecasted that its comps would either fall 1% or rise 1% in fiscal 2017.

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