Target’s Grocery Business is Failing

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August 15, 2016 10:22am NYSE:TGT

target-tgt-logoTarget Corporation (NYSE:TGT) is struggling to attract its brick-and-mortar shoppers into its grocery aisles, and they’re losing too much produce and other perishable items to spoilage as a result.


This trend could spell big trouble for its grocery unit, which accounts for 20% of the company’s total sales. From the WSJ:

Perishable foods, which usually are the big traffic drivers at most grocery stores, have been a drag on Target’s profits, according to people familiar with the matter. And in May, Target said customers were making fewer trips for smaller purchases. “We have seen some trip erosion with guests coming in for that fill-in trip,” CEO Brian Cornell said on a conference call.

Since he took over in 2014, Mr. Cornell has made several efforts to revamp the grocery business, which accounts for a fifth of Target’s revenue, or $18.5 billion in annual sales. The company changed leadership, added more organic and gluten-free items and invested in store design.

But Target has warned that overall sales at existing stores could decline 2% in its second quarter, which it is slated to report Wednesday.

Target’s biggest problem is that it isn’t a full-fledged grocery store, nor is it a specialty grocery store. It’s a diversified retailer that depends on clothing and household items for the bulk of its sales. Most of its core audience doesn’t go there specifically to buy food.

Getting shoppers to pair a new maxi dress and leggings with chicken breast and broccoli will be no easy task. The company at least hopes to get its spoilage issue under control soon, as it’s “evaluating how we get fresher foods to our guests faster and finding ways to better leverage our distribution centers and partners.”

Solving those issues will likely mean the difference between making the grocery business a success or abandoning entirely.

Target shares rose $0.73 (+0.97%) to $75.94 in Monday morning trading. TGT stock has gained 4.28% year-to-date.

TGT-2016-08-15


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