Target’s first Manhattan location, in the Harlem district of New York City, has closed its doors for good. Eight additional city stores across the nation have been closed by the retailer.
Target’s closures, which it attributed to theft and violence during a period of declining sales, were the most recent in a string of high-profile setbacks for the big-box retailer—a startling reversal of fortune for an organization widely regarded as a major winner of the Covid pandemic.
However, Chief Operating Officer John Mulligan stated that Target sees “lots more opportunity to grow in New York,” including city neighborhoods, as the company works to break out of a recent slump. He cited Target’s openings and closures in Chicago and Minneapolis-St. Paul, the company’s hometown, as proof that closing locations does not indicate the business has run out of space to expand.
He remarked, “This is something we’ve done over and over again if you go back in time.” “We don’t stop investing in a market just because we close a store there,”
Target will provide an update to investors this week regarding its sales trends and efforts to overcome a number of obstacles, marking the first time since the unexpected store closures. On Wednesday, it is expected to release its fiscal third-quarter earnings and discuss its future goals with investors. The company is a great example of the advantages retailers experienced during the Covid pandemic spending boom as well as the particular difficulties they encountered afterward.
Target is experiencing lower sales, similar to other retailers. This is a result of consumers having less money to spend following an economic stimulus-fueled shopping binge and having to pinch pennies due to inflation. It has also had to deal with other issues, such as having too much of the incorrect inventory in stock, criticism of its Pride collection, theft losses, and organized retail crime.
While they haven’t directly linked store closures to theft, a few other retailers, including Walmart and Nordstrom, have also closed locations in large cities. The impact of people moving to suburbs or spending half or more of their workweeks at home may also have been felt by those companies’ closed stores in San Francisco and Chicago, respectively.
Mulligan of Target stated that assessing and closing stores is a standard aspect of running a business. According to him, some locations are inoperable, and Target concluded that the nine stores it closed in the regions of New York, Seattle, Portland, Oregon, and San Francisco were no longer secure.
However, Greg Melich, an Evercore ISI retail analyst, stated that the closed stores only highlight Target’s greater difficulty in attracting new customers and resuming growth. He stated that safety concerns and theft were probably factors in the already poor performance of the stores.
“They need to win back their client,” he declared. “That is the core issue.”
A rocky journey for target
Target has seen difficult sales and stock performance for more than a year.
As of Friday, the company’s shares had dropped roughly 27% so far this year, performing much worse than the S&P 500 and trading at less than half of what they had reached at the height of the pandemic years.
After alerting investors that it anticipated lower sales than the previous year, Target lowered its full-year forecast in August. It predicts that comparable sales will fall by roughly mid-single digits for the fiscal year and that earnings per share will be between $7 and $8.
Target’s CEO, Brian Cornell, stated in a recent interview with CNBC’s Becky Quick that the company has even observed customers purchasing fewer groceries as a result of feeling the pinch of “really sticky inflation” on commonplace items like pet food and baby formula.
Target will have to deal with customers balancing increased credit card costs, higher homeowner mortgage rates, and additional expenses as student loan repayments resume as the company prepares for the holiday season.
Cornell doesn’t think that way of thinking will shift very soon.
“As consumers consider the remainder of the year and moving into 2024, that’s the caution we’re seeing right now,” he stated. “How are their budgets managed? Additionally, I believe they will spend far more sensibly.
He stated that the company is “leaning into affordability” and introducing new products that encourage customers to open their wallets in order to boost holiday sales.
However, retail analyst Michael Baker of D.A. Davidson stated that he anticipates Target to underperform against its competitors this holiday season and miss fiscal third-quarter revenue targets.
Target’s merchandise heavily leans toward discretionary items, which customers frequently overlook when money is tight, which contributes to some of the retailer’s problems. For instance, groceries account for more than half of Walmart’s yearly sales.
However, Baker suggested that Target’s vigorous efforts to get rid of extra inventory last year may have caused an overcorrection.
It’s more difficult for merchants to take chances and place bets during a time when they’re drawing down inventory and being extremely cautious with it, he said.
Target’s retail predicament
Target may increase sales by adding more locations, but this will present a challenge as it attempts to predict where consumers will shop most in the post-pandemic environment.
Since late January, Target has expanded its nationwide presence with the opening of 21 stores, including new locations in the Outer Banks of North Carolina and Grass Valley, California, a small town located approximately one hour northeast of Sacramento. There are plans to open new stores in Detroit, Oahu, Hawaii, and other locations.
Simultaneously, the high-profile closures of Target prompted new inquiries about the company’s and other major retailers’ desire to remain in urban areas where rents are high and foot traffic is, in certain cases, less predictable due to hybrid work.
A few demographic changes and pandemic trends have forced retailers out of traditional malls and large cities. Citing shifting market conditions, Nordstrom closed its flagship store in San Francisco but expanded Nordstrom Rack, its off-price brand, into suburban strip malls. The newest Macy’s stores can also be found in suburban strip centers and not inside malls.
The market has turned against retail real estate. For the first five quarters since July 2022, availability in suburban areas has become more scarce than in urban areas, according to Brandon Isner, head of retail research for the Americas at real estate company CBRE.
According to him, grocery stores are now the desirable neighbors for many retailers, making them the “front-line heroes of the pandemic.”
“People may not visit the mall during a difficult economic period, but they will still shop at the grocery store every week,” he stated.
Isner also mentioned that some retailers are relocating within cities. They may be relocating to a neighborhood with greater foot traffic, a newer building, or a cheaper rent; occasionally, they are leaving a crime-ridden area.
Target will keep opening locations in cities and suburbs, according to Mulligan. For example, he stated that due to the city’s increasing population, Target wishes to open more stores in Charlotte, North Carolina. It aspires to have locations in New York City that draw in business from travelers who came back in large numbers following the pandemic.
Target has smaller locations in some cities and close to college campuses. Since over 90% of its online orders are picked and packed there rather than at distant fulfillment centers, its fleet of locations plays a significant role in the company’s online business.
Target has opened a new location in Union Square, New York City, following the closure of its Harlem store. About a mile and a half from the location it closed, in Central Harlem, is where it intends to open a new store.
According to Mulligan, the new store will be “significantly smaller” than the previous one and more in line with the company’s other Manhattan locations. The opening date has not been disclosed by the company.
Some people find that their disappointment at their nearby location closing doesn’t go away because of the new location. Some customers said the smaller store might not have the same necessities and groceries they need, and they questioned the rationale of opening so close by if theft is an issue.
Target has to make this calculation in an effort to close locations while keeping consumers, as fewer consumers are pulling out their wallets to buy non-essential items.
Tyrone Davis and his girlfriend, teacher Julissa Patoja, went shopping together once a week at the Target store in Harlem. They valued the store’s lower costs and wider assortment of necessities like laundry detergent, cereal, and shampoo as well as luxuries like pumpkin-themed décor for Pantoja’s preschool.
He said he wasn’t sure if the same mix would be found in the new Harlem store.
Books, Halloween costumes, and greeting cards were among the things that remained on the shelves during the store’s closing days as the grocery aisles were cleared out.
Customers like Davis and Patoja arrived at the store with empty carts and tote bags ready for purchases in the hours following its closure.
Customers felt bewildered and irritated. Some people had no idea that the store was closing. Some said they would shop at other stores or think about buying online at Walmart or Amazon if they didn’t have a Target nearby.
According to Davis, “it’s a shocking move to everyone.” “There’s no denying the loss.”
