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How Target’s Sales Could Improve in 2017

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Recent performance

Target (TGT) has managed to revive its sales numbers so far this year. The company’s sales turned positive in fiscal 2Q17[1. fiscal 2Q17 ended July 29, 2017] after reporting a decline in its top line for the past several quarters. 

The retail giant saw increased sales across all product categories in fiscal 2Q17, thanks to its focus on its e-commerce business, value pricing, and remodeled stores. Target’s digital business is growing at a brisk pace, rising 32% in fiscal 2Q17, which is the key catalyst behind the company’s turnaround on the comps front.

One area of concern for Target is its food and beverage category, although the segment is showing signs of stabilization. However, increased competition from the combination of Amazon (AMZN), Walmart (WMT), Costco (COST), and deep discounters like Aldi and Lidl pose challenges to the retailer.

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Focusing on Target’s growth initiatives

Target (TGT) stated that it was committed to opening new small-format stores and remodeling existing ones. This initiative is expected to drive sales growth, as these stores generate higher comps and productivity. Target’s differentiated offerings also support its sales.

For example, the company’s Cat & Jack and Pillowfort brands are experiencing stellar sales. The company remains on track to add 12 new brands in this fast-growing segment, which is projected to boost its top line in the next few quarters. Target recently entered into a partnership with Magnolia to launch its new home and style brand, Hearth & Hand.

To strengthen its digital arm, Target rolled out its Restock service to new markets. Restock allows consumers to order everyday essentials and to receive home delivery for a $4.99 fee. Target acquired Grand Junction, a tech-based logistics startup to speed up its delivery process. Grand Junction would enhance its in-store pickup and ship-from-stores services.

Most importantly, Target announced price cuts on thousands of products to attract buyers and strengthen its competitive positioning. Lower prices are expected to bring value-driven shoppers to its stores and website.

Target management expects its comps to either rise or fall 1% in fiscal 2017. Increased competition, mainly in its Grocery segment, as well as the tough retail landscape could affect its top-line performance. Analysts project Target’s top line to rise 2% in fiscal 2017.

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