A Closer Look At Target’s Store Makeover
As it struggles to grow revenues, Target (NYSE:TGT) is investing significantly in redesigning its stores to make them more customer-friendly and efficient. The company piloted its first such “next generation” outlet in Richmond, Texas and is investing significantly in the makeover of its stores. It plans to redesign 500 stores over the next three years and is spending “billions of dollars” for this transformation. The new retail stores will have two different entrances – one for customers shopping for Target brands and other seasonal items, and one exclusively for customers picking up online orders or looking to shop for groceries. The second entrance is targeted towards customers who want to save time and make a quick trip to the store for a quick grocery pick-up. The company is also introducing a wine and beer shop near the grocery section to attract customers. Another key feature of this redesign is to offer dedicated parking spaces where store employees will deliver online orders. This is similar to the service being offered by Wal-Mart to its customers, aimed at convenience and efficient pick-up of online orders. As brick-and-mortar stores compete with e-commerce giants, a convenient shopping experience can be a key factor towards driving revenues and Target is looking to achieve this through its store redesign.
Increasing Efficiency, Improving Product Display
Target’s store makeover is aimed at making the shopping experience more efficient and convenient for its customers. While competitors such as Wal-Mart are working on technology initiatives such as smart shopping carts and scan-and-go payment options, Target is looking at a smarter store design to improve efficiency. Long check-out lines, parking hassles and inefficient store designs that make it difficult to locate products can drive customers away from large stores. However, Target is looking to resolve these issues through its “next generation” stores. This transformation is part of the company’s strategy to “create a smart network with stores digital channels and supply chain working together to meet the guests’ needs.” Apart from making the stores more efficient, the company is also modifying its aisles to improve product presentations, encouraging customers to browse through the company’s inventory of apparel, accessories and other products. It will also use new technology to empower store employees to search inventory and take payment from a mobile point-of-sale device.
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These initiatives should improve the store experience, and could potentially entice customers to spend more at Target’s stores. Average revenue per square foot is a key value driver for Target, and we expect the figure to increase gradually from an estimated $283 in 2017 to $290 by the end of our forecast period.
If this number increases more rapidly, as customers spend more at Target’s redesigned stores, it can lead to an upside to our price estimate. While the capital spend on redesigning these stores might impact the company’s cash flows in the short term, improving the store experience is a step in the right direction in the long run.
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