Target to invest US$4 billion a year to speed up delivery as online demand soars

REUTERS: Target Corp will invest US$4 billion annually over the next several years to open new stores and cut delivery times for online orders, hoping to cement gains made during the pandemic that helped more than double holiday quarter digital sales.

The company’s shares fell as much as 6.8per cent after the announcement on Tuesday as investors shrugged off a 21per cent jump in holiday-quarter revenue and record 2020 profits on same-day delivery and store pick-up services.

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Target’s push over the last year to use its retail outlets as fulfillment centers for online orders has drastically cut delivery times and helped it swipe market share from smaller rivals who rely more on their store traffic, which has been pressured by the health crisis.

The company expects to remodel 150 stores in time for the holiday season to cater to same-day fulfillment, as it looks to better compete with Amazon.com Inc and Walmart Inc.

Target estimated the investments to cause this year’s operating margin rate to fall below the 7per cent recorded in 2020 but remain above the 2019 rate of 6per cent.

In February, Walmart also forecast higher investments this year in areas like supply chain and automation.

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Target said it plans to open 30 to 40 new stores each year, with new small format outlets coming up in New York City, Los Angeles and Portland. The company opened 30 stores in 2020.

The Minneapolis-based company also held back from providing sales and earnings forecasts for fiscal 2021, saying it would be an “exercise in false precision” due to uncertainties related to shopping patterns and the health of the economy.

In the fourth quarter ended Jan. 30, comparable sales rose 20.5per cent comfortably beating analysts’ estimates for a 16.4per cent rise, according to IBES data from Refinitiv.

Sales through its same-day deliveries and store pick-up services more than tripled, while adjusted earnings of US$2.67 per share beat estimates of US$2.54.

(Reporting by Uday Sampath in Bengaluru; Editing by Sriraj Kalluvila)