Blog: Leonie BarrieTarget misses its aim

Leonie Barrie | 18 November 2008

Target, the US’ second largest discount store chain, made a mark for itself by teaming up with designers such as Isaac Mizrahi to set the standard for mass-market, cheap chic fashions. But now its customers don’t want trendy designer clothes and home decor – at least not in the same volumes as before – and are switching to even cheaper rivals such as Wal-Mart for basics like food and toiletries.

In its third quarter results release yesterday (17 November), Target said net earnings slipped 23.6% to $369m from $483m. Total sales rose 1.9% to $15.1bn, helped by the addition of new stores, but same-store sales in its retail segment dropped 3.3%.

Worryingly, however, its credit card business points to the troubles ahead, with profits here slumping 83% to $35.0m. While this is just a small share of the firm’s total turnover, its significance is that this decline in performance was partly due to higher bad debts as shoppers struggled to pay their bills.

All of which doesn’t bode well for the holiday season. As a result, Target has “temporarily suspended” most of its share repurchase activity, and reduced 2009 capital expenditures by about $1bn. It is also planning an aggressive campaign to “deliver compelling reasons” for people to shop at Target including “great prices” on everyday basics and fashion items.

Even so, it still expects same-store sales to fall by 6-9% in November.

 

US: Target cuts spending as Q3 profit tumbles 24%


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