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Target to evolve supply chain with new finance model

In the wake of tumbling fourth-quarter earnings, US department store retailer Target Corp has revealed a new financial model, promising an overhaul of stores, digital channels and supply chain, alongside the introduction of more than a dozen new brands.

Designed to position Target for long-term, sustainable growth in "this new era in retail", the plans will see the retailer attempt to capitalise on its 34% digital sales growth in the fourth quarter.

The Minneapolis-based company says it will invest more than US$7bn in capital over the next three years, and a further $1bn in annual operating profits beginning in 2017, in a bid to grow sales faster, gain market share, adapt to guests' rapidly changing preferences and give customers "even more" reasons to choose Target.

"We're investing in our business with a long-term view of years and decades, not months and quarters," says CEO Brian Cornell. "We're putting digital first and evolving our stores, digital channels and supply chain to work together as a smart network that delivers on everything guests love about Target, including more than a dozen new brands we'll introduce over the next two years. We're confident our strategy meets the challenges of today and will lead us well into the future."

Also in the pipeline are plans to "re-imagine" more than 600 stores, in a bid to enable what the retailer calls a more digitally connected Target experience. Plans include storerooms doubling as "hyperlocal distribution centres" to boost delivery times and allow the retailer to operate more cost effectively. According to Target, all stores will have this capability by 2019.

The company will also be rolling out new technology that allows staff to search inventory, take payment from a mobile point-of-sale system and arrange delivery - all from the sales floor. Target says the technology will be in all stores by the end of this year.

Meanwhile, the retailer has revealed plans to open 30 small format stores in 2017, doubling its presence in urban markets and on college campuses. These stores serve as neighbourhood hubs for guests to pick up online orders and help reach guests in areas it couldn't before, says Target. By 2019, the company says it will operate more than 130 small format stores.

In addition, the retail giant plans to introduce more than 12 new exclusive brands across its apparel and home departments, in the hope that the new lines will "truly resonate" with customers in much the same way as its children's offering Cat & Jack.

"We've learned from launching brands like Cat & Jack and Pillowfort how new brands that truly resonate can help us capture bigger pieces of the market," the retailer explains.

Other plans include a return to competitive prices and a shift away from promotional activity.

"While the transition to this new model will present headwinds to our sales and profit performance in the short term, we are confident that these changes will best-position Target for continued success over the long term," adds Cornell.

Yesterday (28 February), the retail giant revealed a drop in earnings and sales in its fourth-quarter, with net earnings tumbling 42.7% to $817m, and sales falling 4.3% to $20.7bn.