Target bets its turnaround on bolstering in-store experiences

Ailing Target is looking to do a multibillion-dollar reboot of its business by focusing on its stores, a strategy that includes opening and remodeling more locations and adding in-store beauty studios, home goods shop-in-shops and even baby boutiques.

The Minneapolis-based discount chain, with nearly 2,000 brick-and-mortar retail sites, outlined its turnaround initiatives Tuesday at an Investor Day event. The game plan is to return Target to its former status as a style leader for affordable fashion and home goods. The retailer also seeks to expand its burgeoning food-and-beverage sales, where it sees a big opportunity for growth.

The effort includes spending $1 billion this year on store openings and revamping as well as on new labor costs and training. Target plans to roll out more than 30 new stores, mostly full-sized, and ramp up store remodels to 130 locations in 2026. In March alone, seven stores are slated to debut, with five of them topping the chain's 125,000-square-foot average.

Michael Fiddelke, the new chief executive officer of Target, is tasked with ending roughly a dozen quarters of flagging or lower sales. Similar to department store operator Macy's, Target got complaints from customers and retail analysts that its stores were messy or often had empty shelves, that there are too few employees on the floor and that its merchandise assortment was lackluster — as it faced competition from growing Walmart.

The new Target stores slated for March are in Bakersfield and Delano, California; Springfield, Missouri; Fuquay Varina, North Carolina; Dallas; and Jersey City and West Orange, New Jersey. Target is set to reach its 2,000th store this month and is on track to build more than 300 new stores by 2035.

"We're making a more than $2 billion incremental investment across the business this year, including an additional $1 billion in [capital expenditures] to support new stores and remodels and another $1 billion to elevate the guest experience," Fiddelke, who took his post Feb. 1, said at Tuesday's event.

"We're moving forward with urgency and a firm focus on Target's unique place in American retail," Fiddelke told Wall Street analysts. "That means delivering the style, design, experience and value consumers crave, and delivering the consistent performance we all expect."

Macy's is still working on its turnaround effort. But in Macy's case, one of the linchpins of its strategy has been to downsize its physical footprint by closing 150 underperforming stores. That tack has yielded some good results so far. But Macy's particular approach contrasts with Target's.

The bulk of Target's capital expenditures this year will be focused on its stores, "which fulfill more than 97% of our sales," according to Chief Financial Officer Jim Lee.

"As one of the largest retailers in the U.S., we benefit from scale similar to our larger peers," he said. "Importantly, because of our differentiated strategy, our assets may look different than our competitors’, but we have exactly what we need to compete and succeed. At the top of that list is our stores, which are well located, well maintained and generate a lot of cash. Excluding a very small number of exceptions, nearly all of our stores generate strong positive cash flow."

Fiddelke echoed the importance of brick-and-mortar locations.

"New stores matter a ton — bringing a new Target store — because the store matters so much to our guests," he said. "The thing we hear played back to us is the delight when we bring a new Target to a new market that doesn't have one or to a growing suburb where the drive's a little bit longer than you'd like it to be. We see real share of wallet gains when we open up a new store, and those financials are strong."

Target's stores also serve as digital hubs for online orders, so investing in them is essentially investing in the company's supply chain, according to company officials.

Part of Target's journey to increased sales, executives said, is adding more shops within its shops within its stores, including home goods.

By June, the chain will have overhauled 75% of its decorative-accessory assortment including trays, candle holders and faux florals, according to Cara Sylvester, chief merchandising officer. Target will also be relaunching its own home goods brand, Threshold, with dedicated shop-in-shop locations starting in 200 stores.

Target will also be opening Beauty Studio locations in 600 stores, in the wake of Ulta Beauty last year saying it would close its shop-in-shop sites at the discounter's stores this year. The new studios will be "a new immersive destination which will establish Target as a true beauty authority by pairing specialty-level presentation and service with the accessibilities our guests expect from us," Sylvester said.

Target also aims to create "a premium boutique-style baby experience" with "new dedicated in-store destination anchored by gift beacons and its curated discovery zones," according to Sylvester.

She also mentioned that Target plans to reimagine and expand its "Fan Central" shops, which feature licensed sports goods and apparel.

The chain is also leaning into the grocery sector, with its private-label Good & Gather line on track to become its first $4 billion brand, according to Sylvester.

Target reported its fourth-quarter earnings Tuesday, with net sales of $30.5 billion, down 1.5% from the prior-year period. Comparable sales declined 2.5%, reflecting a comparable-store sales decrease of 3.9% and a comparable digital-sales rise of 1.9%.

But the company sees better results coming this year.

"Behind the scenes, we've been working hard to clarify our strategy, and that work is guiding the choices and investments we're making in our business, including planned incremental investments of more than $2 billion back into our business this year," Lee said.

"And while it's still early and there's much more change ahead of us, we're already seeing clear signs that our work is paying off," he said. "As a result, I'm very confident in our ability to get back to profitable growth this year and deliver strong returns to our shareholders in 2026 and beyond."

Neil Saunders, a retail analyst and managing director at analytics firm GlobalData, is taking a wait-and-see attitude.

"As poor as the numbers are, Target gets something of a pass this quarter," Saunders wrote in a note. "Not because there are excuses for this performance, but because there has been a change at the top — and with it has comes a change in tone. Management has frankly acknowledged the business has not been on the front foot and it wants to fix things."

According to Saunders, "All the newfound energy is encouraging. But, at the end of the day, that hope must be translated into much better execution."

Target didn't respond to an email from CoStar News seeking comment on Saunders' remarks.