Target’s store in Harlem is one of nine locations that the retailer recently shuttered. It blamed the closures on high levels of theft and safety risks.
Melissa Repko | CNBC
Within the Harlem neighborhood of Latest York City, Target‘s first store to open in Manhattan has permanently shut its doors. The retailer has closed eight other city stores across the country.
Target’s closures, which the corporate blamed on theft and violence at a time when sales have stagnated, marked the newest in a series of public setbacks for the big-box retailer— a jarring turnabout for a corporation seen as a serious Covid pandemic winner.
Yet as Target tries to tug itself out of a recent rut, Chief Operating Officer John Mulligan said the corporate sees “lots more opportunity to grow in Latest York,” including city neighborhoods. He pointed to closures and openings in Target’s hometown of Minneapolis-St. Paul and in Chicago as evidence that shuttering stores doesn’t mean the corporate has run out of room to grow.
“For those who return through time, that is something we have done over and yet again,” he said. “And once we close a store in a market, it does not imply we stop investing in that market.”
This week, Target for the primary time for the reason that surprise store closures will update investors on its sales trends and efforts to beat a string of challenges. It’s scheduled to report fiscal third-quarter earnings on Wednesday and share with investors where it plans to go from here. The corporate, in some ways, embodies each the advantages retailers saw throughout the Covid pandemic spending boom and the unique challenges they’ve faced coming out of it.
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Like other retailers, Target is coping with softer sales — a mirrored image that shoppers have less to purchase after a stimulus-fueled shopping spree and have pinched pennies because of inflation. It has coped with other dynamics, too, including stocking an excessive amount of of the unsuitable inventory, backlash over its Pride collection, and losses from theft and arranged retail crime.
Another retailers, similar to Nordstrom and Walmart, have also shut stores in major cities — though they’ve not specifically blamed theft. Those firms’ closed stores, in San Francisco and Chicago, respectively, can have also felt the impact of people moving to suburbs or spending half or more of their workweeks at home.
Target’s Mulligan said evaluating and shutting stores is a routine part of operating an organization. Some locations don’t work, he said, and Target believed the nine stores that it closed within the Latest York, Seattle, Portland, Oregon, and San Francisco areas weren’t protected anymore.
But Greg Melich, a retail analyst at Evercore ISI, said the shuttered locations represent an even bigger challenge for Target: it has struggled to win shoppers and get back on a path to growth. Theft and safety concerns likely contributed to already underperforming stores, he said.
“They have to get their customer back,” he said. “That is the basic problem.”
A bumpy ride for Target
For greater than a 12 months, Target has endured rocky sales and stock performance.
Shares of the corporate had fallen about 27% this 12 months as of Friday, trailing far behind the S&P 500‘s performance and trading for lower than half of their peak value during the pandemic years.
Target cut its full-year forecast in August, after already warning investors it expected lower sales than a 12 months ago. For the fiscal 12 months, it projects comparable sales to say no by about mid single digits and earnings per share to range from $7 to $8.
![Target CEO Brian Cornell: Shoppers are pulling back, even on groceries](https://image.cnbcfm.com/api/v1/image/107327641-16989266701698926666-31851735096-1080pnbcnews.jpg?v=1698926669&w=750&h=422&vtcrop=y)
In a recent interview with CNBC’s Becky Quick, CEO Brian Cornell said Target has even noticed shoppers buying fewer groceries as they feel pinched by “really sticky inflation” on on a regular basis items like baby formula and pet food.
As Target looks to the vacation season, he said the corporate will contend with consumers juggling the upper cost of carrying a bank card balance, a steeper mortgage rate for homeowners and an additional expense as student loan payments resume.
Cornell doesn’t expect that mentality to alter anytime soon.
“That is the caution we’re seeing immediately as consumers think concerning the balance of the 12 months and going into 2024,” he said. “How do they manage their budgets? And I believe we’ll see them spending way more rigorously.”
To drum up holiday sales, he said the corporate is “leaning into affordability” and offering fresh items that encourage them to open their wallets.
But Michael Baker, a retail analyst at D.A. Davidson, said he expects Target will miss fiscal third-quarter revenue expectations and have a rougher holiday season than its rivals.
Target’s problems are available in part from the proven fact that its merchandise skews heavily toward discretionary items that customers often skip when the budget is tight. Walmart, for instance, draws greater than half of its annual sales from groceries.
But Target’s aggressive push to get rid of excess inventory last 12 months can have led to an overcorrection, Baker said.
“If you’re in a period of drawing down inventory and being really conservative in your inventory, it’s harder for merchants to make bets and take risks,” he said.
Target’s store dilemma
Target could boost sales by opening recent stores, too — a challenge because it tries to gauge where people will shop most within the post-pandemic world.
Target has opened 21 stores across the country since late January, including in recent markets just like the Outer Banks of North Carolina and Grass Valley, California, a small town about an hour northeast of Sacramento. More stores are on the best way, including recent ones in Oahu, Hawaii, and Detroit.
At the identical time, Target’s high-profile closures raised fresh questions on whether the corporate — and other major retailers — still need to be in city centers where rents are high and foot traffic, in some cases, is less predictable because of hybrid work.
Some pandemic trends and demographic shifts have led retailers out of major cities and traditional malls. Nordstrom shut its San Francisco flagship, citing changing market dynamics, but has opened more of its off-price banner, Nordstrom Rack, in suburban strip malls. Macy’s newest locations are outside of malls and in suburban strip centers, too.
Demand for retail real estate has flipped. Availability in suburban areas has grown tighter than urban areas for the past five quarters that began in July 2022, said Brandon Isner, head of retail research for the Americas at real estate firm CBRE.
Grocers, “the front-line heroes of the pandemic,” have develop into the new neighbors that many retailers want, he said.
“If it is a trying economic time, people won’t go to the mall, but they will go to the food market still each week,” he said.
Isner added that inside cities, some retailers are moving from one area to a different. Sometimes, they’re moving away from an area that has struggled with crime, and in other cases, they’re selecting to go to a neighborhood with more foot traffic, a more moderen space or a lower rent.
Mulligan said Target will proceed to open stores each within the suburbs and in cities. As an example, he said, Target desires to have more stores in Charlotte, North Carolina, because of its population growth. It desires to have locations in Latest York City that capture business from tourists who returned in droves after the pandemic.
Some of Target’s stores in cities and near college campuses are smaller. Its fleet of locations also serve a vital role for the corporate’s online business, since greater than 90% of its online orders are picked and packed there moderately than in faraway success centers.
Since closing the Harlem store, Target has opened a recent location in Latest York City’s Union Square. It plans to open a recent store in Central Harlem, a couple of mile and a half away from the situation it shuttered.
Mulligan said the shop will probably be “significantly smaller” than the old location and closer in size to its other Manhattan stores. The corporate has not announced the opening date.
For some, the situation that is coming doesn’t lessen the frustration of seeing their nearby location close. Some shoppers also questioned the logic of opening so close by, if theft is an issue, and said the smaller store may not carry the identical groceries and essentials they need.
It is a calculation Target has to make because it tries to shut stores, but retain customers, at a time when shoppers are opening their wallets less often for items they do not use day-after-day.
Tyrone Davis went to the Target in Harlem for weekly shopping trips together with his girlfriend, Julissa Patoja, a teacher. They appreciated its cheaper prices and bigger selection of on a regular basis items, similar to cereal, shampoo and laundry detergent — together with discretionary items like pumpkin-themed decor for Pantoja’s pre-kindergarten classroom.
He said he is not sure if the brand new Harlem store can have that very same mix.
In the ultimate days of the shop, items like greeting cards, Halloween costumes and books lingered on shelves because the grocery aisles were cleaned.
Within the hours after it closed, customers including Davis and Patoja arrived to the shop with empty carts and tote bags for purchases.
Shoppers were confused and frustrated. Some didn’t realize the shop was closing in any respect. Others said with out a local Target, they’d turn to other retailers, or consider shopping online at Walmart or Amazon.
“It is a shocking move to everyone,” Davis said. “It’s definitely a loss.”
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