What can we learn from Target’s Earnings Report?

Okay so what should retail observers take away from Target’s earnings report? Here are some very casual observations:

  1. Target has a really good business that still makes a lot of money.

  2. That business is steadily shrinking and the shrinkage is speeding up.

  3. Target is having a hard time keeping its cash.

  4. Unlike Walmart (NYSE: WMT) Target is not holding its own against Amazon (NASDAQ: AMZN). Walmart’s revenues increased slightly over 2016, while Target’s shrank.

  5. Target is far more vulnerable to Amazon than Walmart is. My guess is that this is because Target’s customer base is younger, more urban and more upscale than Walmart’s. Those groups are more likely to shop online and buy from Amazon.

  6. Amazon Prime is hurting Target badly. Such features as Prime Basics and the fashion line Buttoned Down are aimed directly at Target’s core customer base. That is younger, urban and suburban consumers.

  7. Target’s fashion-focused business strategy is very vulnerable to Amazon. Amazon is now the second largest fashion and apparel retailer in the United States.

  8. Target’s ecommerce push does not seem to be working. In July 2016 Statista found that Walmart.com received 101 million visitors a month making it America’s third most popular ecommerce destination. Amazon was number one with 183 million visitors and Target was number five with 61 million visitors.

  9. Target is still a pretty good investment its shareholders received a 23.16% return on equity on January 31, 2017. They also took whom a 60¢ a share dividend on February 13, 2017. That was a four cent increase over 2016’s 56¢ dividend.

My take from all that is Target is a good short term investment that will keep paying off for two or three or years. Despite that its prospects beyond 2020 are limited unless major chances are made to the company.

One reason for this is that Target has not taken the changes in the retail industry seriously and not adapted to the new environment. A good example of this is the thoughtless approach to ecommerce; namely build a website and put a bunch of stuff online. Another is the failure to adapt stores for specific markets and circumstances as the debacle in Canada demonstrated.

All this shows that Target’s first need is for new management. It needs to take a chance and bring in outside help the way Walmart did by hiring Jet’s Marc Lore last year.

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