Giant discounter Target plans to spend $5 billion next year — $1 billion more than this year — to open more and some larger stores, while updating its existing brick-and-mortar fleet as it attempts a turnaround.
The Minneapolis-based chain, with 1,989 U.S. stores, on Wednesday said it will be ratcheting up its efforts to improve its lagging sales in part by making improvements to its retail real estate and investments in technology.
The company lowered its profit expectations but touted its efforts to upgrade stores and jump-start revenue after third-quarter net sales dipped 1.5% to $23.5 billion.
“As a retailer that believes that the shopping experience is every bit as important as the products we sell, we need to offer a more consistently elevated experience across our stores and digital platforms,” Michael Fiddelke, Target’s incoming CEO, told Wall Street analysts.
He will be succeeding longtime CEO Brian Cornell in February and has challenges ahead of him. Target’s sales have been dropping for several years now as it faces a field of competition that includes Walmart, Amazon and off-price chains such as T.J. Maxx and HomeGoods. Fiddelke has conceded that Target, once dubbed “Tarzhay,” has lost its cachet of selling reasonably priced but stylish apparel. One of his goals is to put Target ahead of trends again, he said.
But the retailer’s most dramatic commitment is its plan to increase capital expenditures next year by 25%, from $4 billion to $5 billion, as it looks to remodel stores and open new ones, “to bring the latest and greatest of Target to new and existing markets,” according to Fiddelke, currently Target’s chief operating officer and former chief financial officer.
“You’ve heard us talk about the strength of our new store pipeline,” he said. “That pipeline continues to be as strong as ever. It’s been just a delight to watch the new store openings this year, especially those bigger boxes, continue to outperform our expectations.”
Going big on larger stores
Three years ago, Target announced it planned to roll out larger-format stores featuring expanded space for online fulfillment services and a greater selection of groceries. Those were slated to be nearly 150,000 square feet, more than 20,000 square feet larger than the chain’s average.
“Our new larger-format stores are outpacing our initial sales expectations and continue to be a strong source of growth,” Fiddelke said. “Given current real estate opportunity, we expect to continue opening these bigger boxes in more and more markets across the U.S.”
Target is also changing how and which stores it uses as fulfillment centers, according to Fiddelke.
“An elevated store experience also means meeting our guests when and where and how they want to shop,” he said. “To do this, we’re reconfiguring the role each of our stores plays within the market to optimize fulfillment, speed and capabilities, and in the process, also better supporting the in-store shopping experience.”
In a pilot program in Chicago, Target has reduced the space dedicated to digital order fulfillment in busy stores that have a high volume of foot traffic, “allowing those teams to spend more time interacting with in-store guests,” Fiddelke said.
“For lower-volume stores in the same market with big backrooms that are perfectly suited to ship products, we’re pushing more digital fulfillment volumes ... creating economies of scale and more optimized workload for each node within the market,” he said. “With the changes we’ve made, we’re getting guests the products they want faster than ever, while reducing average fulfillment costs.”
Target will be “rolling out some of the learnings from that test to 35 more markets here before the year is out,” according to Fiddelke.
Partnership with OpenAI
The retailer on Wednesday also announced it was partnering with artificial intelligence firm OpenAI through its ChatGPT app and said it expects Target will be one of the first retailers to offer the purchase of multiple items in a single transaction, fresh-food purchases and the ability to choose drive-up and order-pickup fulfillment options through that platform.
Last month Target said it was laying off roughly 1,800 corporate employees, a move Fiddelke attributed to thinning management layers to hasten decision-making rather than to cost-cutting.
The way for Target to solve its problems is “to grit its teeth and commit to the investment needed,” according to Neil Saunders, a retail analyst and managing director at analytics firm GlobalData.
“Fortunately, this does seem to be coming through with a commitment to put an extra $1 billion into improving operation and stores in 2026,” he wrote in a note Wednesday. “If this means Target needs to take a further step back on profit before it moves forward, we see this as a very necessary retreat. However, the truth is that while investment is critical, it needs to be properly directed to make sure Target can execute properly for its customers.”
The company’s issues include “out of stocks, messy stores, long wait times and locked-up products,” according to Saunders.
“Resolving these issues is akin to untangling a very knotted ball of yarn — something that is neither simple nor fast,” he said. “However, we do welcome the noises that management has started to make and the plans it has laid out today.”
Target didn’t respond to an email from CoStar News seeking comment on Saunders’ remarks.