Target plans to double down on its third-party marketplace, media network and same day delivery services to drive more than $15 billion in revenue growth over the next five years, it said Tuesday at an investor meeting in New York City.
The retailer’s plans to grow its business and better compete against rivals like Walmart and Amazon come as Target finds itself in a rough patch, struggling to grow sales of high-margin discretionary merchandise and reclaim its competitive advantage.
Shares of Target fell more than 5% in early trading on Tuesday after the company issued its fiscal 2024 fourth quarter earnings and told investors it’s expecting to see a “meaningful” drop in profits during its current quarter because of soft sales in February. As of Monday’s close, shares of the company are down nearly 11% this year.
In CEO Brian Cornell’s presentation to investors and analysts, he touted the company’s plans to grow its third-party marketplace. The strategy takes a page out from Walmart, which has looked to mimic Amazon’s model to boost revenue. Both of the legacy retailers are turning to digital sales – and the unlimited supply that comes from third-party sellers – as paths to growth as more consumers shop online and they run out of space to build new stores.
In a press release, Target said it plans to “dramatically expand the size” of its marketplace and grow third-party digital sales from about $1 billion in 2024 to more than $5 billion in 2030. However, it appears to be more interested in bringing household names like Peloton, Daily Harvest and Honest Baby Clothing to the platform rather than unknown third-party resellers and small businesses with private label lines.
As part of those plans, it’s also going to work to double the size of its in-house media company Roundel by 2030. The company said that unit drove more than $2 billion in value last year. That’s another strategy deployed by Walmart, which has turned to its own in-house advertising platform, Walmart Connect, as one of its novel paths to growth.
Beyond these extraneous businesses, Cornell said the company will also double down on the retail fundamentals it’s been criticized for falling behind on: fresher products, revamped stores and better in-stocks.
“There are some forever truths in retail. One of them is, retail is about product, and the best product at the best value wins,” Chief Operating Officer Michael Fiddelke said during the meeting. “And when you can find that fantastic combination of newness, style and value at Target, we win.”
Having a wide range of fresh products is key to Target’s success and has long been its primary competitive advantage. Fans of the company say that one doesn’t enter a Target store with a shopping list – they discover new products while buying the essentials they came in for.
Over the last couple of years, Target has seen discretionary sales lag even as they’ve grown at Walmart, indicating its assortment is the problem – not a greater macroeconomic issue.
To work to remedy that, Target is planning to expand its gaming, sports and toys assortment and boost its home selection, another key, high-margin category for the company.
It’s also going to grow its owned brands with a new series of Good & Gather Collabs, as part of its private label brand, with celebrity chefs like Ann Kim. Target plans to unveil 600 new food and beverage items across Good & Gather and Favorite Day, another private label brand, and revamp its pet supplies brand, Boots & Barkey.
The company aims to fix its apparel supply chain to reduce the time it takes to design, source and get products on shelves so it can respond more quickly to trends and better compete with Chinese e-tailers like Shein and Temu.
It plans to invest between $4 billion and $5 billion into stores, supply chain and technology to reduce out-of-stocks and implement new delivery methods to boost delivery speeds. Those investments will include modernizing the company’s legacy inventory management system with “AI-powered technology solutions,” it said in a press release.
“We know there’s no Tarzhay magic If you can’t find the item you were looking for because we were out of stock or we didn’t delight you in store,” said Fiddelke.
It also plans to open 20 new stores, the majority of which will be large formats, and invest in remodels across the fleet.