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Target's traffic problems won't be an easy fix

Target just can't seem to zero in on the right balance between cheap and chic.

After skewing its messaging and product mix too heavily toward the "pay less" portion of its "expect more, pay less" promise after the recession, the pendulum has now swung the other way.

Having successfully revitalized sales in its "signature" categories of style, baby, kids and wellness, the discount retailer is now struggling to bring shoppers into its stores for two major categories that drive repeat traffic: grocery and pharmacy.

Footfall in Target's stores declined 2.2 percent during the second quarter, marking the first time in a year and a half that fewer shoppers visited the retailer's shops.

One of the biggest detractors during the three-month period was what the company admitted was an overemphasis on marketing its fashion assortment. While that bias contributed to a mid-single-digit comparable sales rise in women's apparel, it led to underperformance in the critical grocery division, where same-store sales fell.

The company once again struggled to bring in shoppers for smaller "fill-in" trips during the quarter, a trend it called out in the prior three-month period.

Traffic was also muted in Target's pharmacy business, as it worked to complete the transition to CVS branding. This led to "near-term disruption" from customers who dragged their feet on switching over their prescriptions. CVS completed the $1.9 billion acquisition of Target's pharmacy business in December.

And because of a slow cycle of product launches in the electronics category, this department welcomed fewer shoppers during the quarter. Electronics posted a double-digit same-store sales decline during the three-month period, including a 20 percent slide in sales of Apple products.

These challenges made for what the company described as a "difficult" retail environment, Target cut its same-store sales and earnings guidance for the year. And some of the strategies it laid out won't be short-term fixes.

"It's going to take awhile for Target to turn this around," UBS analyst Michael Lasser told CNBC. "[Traffic's] not an easy problem to fix."

Customers use Target Corp. shopping carts to move products inside a company's store in Chicago, Illinois.
Christopher Dilts | Bloomberg | Getty Images
Customers use Target Corp. shopping carts to move products inside a company's store in Chicago, Illinois.

CFO Cathy Smith acknowledged traffic was the company's "No. 1 challenge."

Changes in its grocery business, including having more products in stock, upping its organics selection and keeping food fresher, have yet to materialize into sales, management said. Target has been testing changes to its food assortment and presentation in a set of California stores. Results have been promising, but it's too early to know how these changes would play out across the broader chain, said CEO Brian Cornell.

Smith outlined one way in which the retailer could use food as a way to highlight its balance between value and specialty products. It could do so by highlighting a low-price offering at the end of one aisle, with a more niche, local product at the end of a neighboring aisle. The company will likewise beef up its marketing to advertise products that drive the midweek "fill-in" trip.

Still, analysts have been critical that Target is not moving fast enough in deploying these types of changes. In the opinion of Jan Kniffen, a retail consultant and CNBC contributor, these tweaks might never be enough.

"Grocery is dragging the business down," Kniffen said. "I don't see how they're going to fix it. I don't see how you compete with Wal-Mart in grocery, and Kroger in grocery, when you don't have a serious grocery offering."

Wal-Mart has been investing heavily in its fresh food business, and has said it will lower prices across the store moving forward.

On the flip side, Kniffen said he's skeptical Target can compete with the specialty grocer set, saying, "I don't think people are going to go to Target for that kind of grocery shopping."

Aside from its food business, Target saw what it considers a small hiccup in its pharmacy division. The discounter is partnering with CVS on stronger media and marketing to work through its transitional period.

It's likewise working with technology vendors to spruce up its electronics assortment, in what's been a slow cycle for new product releases. Though sales in wearables continue to excel, they haven't been enough to counter softness in mobile. Apple is expected to launch the next edition of the iPhone later this year.

And despite noise surrounding its inclusive bathroom policy, Smith reiterated that the chain hasn't seen a material impact on its sales because of the controversy. The company said Wednesday that it will invest $20 million so that all its stores will have a single-stall restroom by March. The majority of its stores already offer one.

Despite its challenges, Cornell restated the company's commitment to its turnaround strategy. He cited improvement in the company's "signature" categories, which outpaced the total business by 3 percentage points.

Meanwhile, Target is pushing forward with its smaller store expansion, which allows it to open shops in densely populated areas such as Chicago. Sales productivity at these stores tends to be much higher than the company average, the retailer said.

"It's a journey," Smith said.