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Target will spend $3 billion a year to remodel stores and more: CEO

Brian Sozzi

Target’s big bets on itself are far from coming to a close.

And it makes sense since it’s a bet that has paid off. So much so that Target (TGT) was named Yahoo Finance 2019 Company of the Year.

“You'll continue to see us spend probably in the neighborhood of $3 billion of capital a year. So we said, that's what it's going to take to remodel stores and continue to invest in our business,” Target CEO Brian Cornell told Yahoo Finance. “Over time, we'll probably go from remodeling 200 or 300 stores to you know, 150 to 200. But we're always going to invest in our stores, and make sure we bring this inspiration, the newness, the excitement to our guests across the country.”

The discounter is nearing the end of a $7 billion capital investment cycle unveiled to Wall Street in February 2017. Target has allocated this sizable chunk of money to sprucing up 600 or so of its stores, opening scores of smaller format stores in urban areas, acquiring same-day delivery service Shipt in late 2017 for $550 million and improving the functionality of its online business. The company opened its first New York City flagship store in October 2017.

Target has also hiked hourly wages north of $13 an hour, with an eye on taking them to $15 an hour soon.

Target illo
Credit: David Foster/Yahoo Finance

The company is on track to spend nearly $3 billion in capital expenditures this year, down from a cycle high of $3.5 billion in 2018. From 2014 to 2017, Target spent an average of $1.8 billion a year in capex, according to Yahoo Finance premium data.

For Target, the elevated levels of spending have been a necessary evil to thwart off tough online competitors such as Amazon and long-time store rival Walmart. While Wall Street wasn’t too enthused by Target’s $7 billion spending plan at first, they have since jumped on board as Cornell has delivered big-time results in 2019 because of the investments.

Target’s stock price has soared 88% year-to-date, powered by a string of strong comparable sales and online growth. The financial performances suggest Target’s investments are widening the competitive gap relative to rivals.

Credit: David Foster/Yahoo Finance
Credit: David Foster/Yahoo Finance

“I think they are executing better than anyone else the omni-channel retailing strategy,” Bank of America Merrill Lynch retail analyst Robby Ohmes says. “I don’t know of any other retailer executing omni-channel retail as well as Target.”

“The strategy we have in place right now, it's still in the early stages,” explains Cornell. “You got a lot more work to do. And we'll continue to invest in remodeling stores and building new stores in urban centers and on college campuses. Introducing some great new owned brands and national brands. Continue to strengthen our ability to fulfill any way you want. And we'll continue to invest in our team.”

Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Follow him on Twitter @BrianSozzi

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