Target will pour $7 billion in capital into areas including its digital properties, its new and existing store base, and lower prices over the next three years, as it tries to adapt to consumers' changing shopping habits and turn around a sales slump that continued into the fiscal fourth quarter.
These investments will also take $1 billion out of the company's operating margin annually, but will better position the retailer for the long term, CEO Brian Cornell told analysts at an event in New York City on Tuesday.
Investors balked at the news, sending the company's shares 12 percent lower in midday trading. Target stock was on pace to record its biggest daily sell-off since 1998, with shares last trading hands at $58.35.
"Many of our competitors are aggressively rationalizing their assets. They're cutting costs just to keep their heads above water," Cornell said. "This contraction will create opportunities for Target to pick up market share over the long term."
In fiscal 2017, roughly $500 million of Target's operating profit investment will be allocated toward driving growth in its business. That includes upgrading more than 100 of its big-box stores; roughly doubling the number of small-format shops it has in college towns and urban areas; adding new brands to its portfolio; and investing in faster, more profitable delivery of online orders.
Another $400 million will be spent onlowering prices across the store, with an emphasis on staples like food and other household essentials. The retailer said it will lean on its historical reputation as a place where prices are low every day, instead of relying on promotions as it's recently done. That decision mimics a recent move by Wal-Mart, which has been gaining share in part by slashing prices.
As a result of these initiatives, Target expects fiscal 2017 and 2018 to be investment years. It should return to stability and growth in 2019, Cornell said.
"We're asking shareholders to make a meaningful investment," Cornell said. "We're investing to win share not surrender it."