Target to invest billions to improve supply chain, ramp up online growth

Wed Mar 2, 2016 5:59pm EST
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By Nandita Bose

NEW YORK (Reuters) - Target Corp (TGT.N: Quote) said on Wednesday it will invest $2-$2.5 billion annually starting 2017, mainly to upgrade its supply chain and technology infrastructure, as it races to reduce stock shortages and pushes for online growth.

Target blamed its "incredibly complex supply chain" for unacceptable stock levels in 2015 that hurt sales growth at established stores. Now, among other initiatives, it is cutting the number of sizes and brands it stocks to address the problem.

Ramping up online sales growth and fixing the supply chain are priorities in the turnaround plan presented by Chief Executive Officer Brian Cornell in 2015 to revive the company after several years of sluggish growth.

In 2016, Target will invest $1.8 billion primarily towards similar improvements, after investing about $1 billion in upgrading its supply network and technology in 2015, the company said on Wednesday.

"We laid out a bold multi-year transformation agenda last March..and we'll be laser focused on those initiatives in 2016," Cornell told a meeting of analysts in New York.

Since taking over in July 2014, Cornell has narrowed the retailer's focus to a handful of product categories where Target believed it has an edge on quality and price. He has pushed to revamp the retailer's grocery business with newer offerings, driven online growth and overhauled Target's archaic and complicated supply chain.

He has also outlined cost savings plans, cut thousands of jobs and pulled out of Canada.

His efforts have slowly started to pay off. Target's stock shortages were 40 percent lower during the holiday season compared to last year, the company reported a better-than-expected comparable sales growth and a 34 percent increase in online sales growth.   Continued...

The exterior of a Target store is seen in the Chicago suburb of Evanston, Illinois, February 10, 2015.  REUTERS/Jim Young