How Target Plans to Beat Back COVID-19

Target is putting its ambitious growth plans on hold and redirecting its focus to meet surging demand for groceries and safety measures amid the COVID-19 pandemic.

"We are prioritizing the work that's in front of us to support our team, store operations and supply chain as families across the country rely on Target for everything they need in this challenging environment. I want to thank our entire team for their efforts, which have been nothing short of heroic," said Brian Cornell, chairman and CEO of Minneapolis-based Target. "Over the past few weeks, we've experienced an unprecedented surge in traffic and sales, as guests rely on our stores and same-day services. Ensuring we can take care of our team and deliver for the millions of guests who are counting on us remains our top priority."

As part of the strategy shift, Target said it will now complete about 130 store remodels this year (down from a previous expectation of 300). Additionally, the company now expects to open 15 to 20 new small-format stores in 2020, rather than the 36 previously planned. Many of these remodels or small formats will shift to fiscal 2021, the company said.

Target is also temporarily putting on hold its effort to incorporate fresh grocery and adult beverages into the company’s Drive Up curbside pickup service.

On Wednesday, March 25,Target withdrew its financial guidance for the first quarter and fiscal year, because of the “highly fluid and uncertain outlook for consumer shopping patterns and government policy related to COVID-19,” according to a company statement.

In an interview with CNBC’s Becky Quick on “Squawk Box” the same day, Cornell said that he's meeting with his leadership team every day to adapt to new shopping patterns and discuss ways of keeping shoppers and employees safe from the virus.

“None of us know how long this virus is going to last,” he said. “We don’t know when Americans are going to go back to work. So it’s been really hard for us to say how long will this go on.”

Meanwhile, the company said that it's “experiencing unusually strong traffic and sales” in its stores and with its same-day pickup and delivery services. March company sales are up more than 20% from last year, with the food and beverage categories  up a whopping 50% from last year.

Target further said that it's escalating measures in its stores to keep customers and employees safe, including cleaning checkout lanes after each sale, adding signage and social distancing rules, and expanding shopping hours for vulnerable guests. The retailer has also temporarily suspended its return policy.

“It’s safe to say that sitting here today, America is largely out of business, as many industries have idled capacity, as consumers are staying at home, working from home. Schools are closed,” Cornell said on CNBC. “It’s a very unique environment that none of us have seen before, and there is no playbook for how to react in this environment. We’re writing the script each and every day.”

Target announced last week that it has raised its pay by $2 an hour for its store and distribution center hourly full- and part-time employees until at least May 2. In addition, the company is offering a new option for associates who are 65 or older, pregnant, or those with underlying medical conditions to access paid leave. Target's latest investments include bonuses it's paying out to front-line team members, including, for the first time, bonuses for 20,000 hourly store team leads who manage individual departments in its stores across the country.

Target said it expects first-quarter costs to be driven by investments in pay and benefits, the spike in merchandise volume in stores and the supply chain, and the impact of additional hours dedicated to more rigorous cleaning routines in stores and distribution centers across the country. Collectively, these changes are expected to add more than $300 million of incremental costs to the company's prior outlook for the first quarter.

"During these unprecedented times, the benefits of our strong balance sheet and diverse, multicategory assortment are particularly important," said Michael Fiddelke, EVP and CFO. "With the best team in retail focused on serving our guests, and ample financial capacity to navigate a highly uncertain outlook, we are confident that Target will emerge from the current environment with an even stronger guest relationship and continue to operate from a position of financial strength."

Target operates more than 1,800 stores, 39 distribution centers and Target.com. The company is No. 15 on Progressive Grocer’s 2019 Super 50 list of the top grocers in the United States.