Retailers had a difficult year in 2016 as the trend toward online shopping continued to pull people away from their physical locations. This was especially true for department stores and one-stop-shops like Target Corporation (NYSE:TGT), that depend heavily on offering a convenient experience to shoppers. Target stock has started the New Year in the green, but it mostly suffered throughout 2016 and its share price has fallen more than 5% over the past month.
Although the TGT stock price is down and it may look like a buying opportunity, investors should continue to be wary as the firm’s prospects in the coming year as they look very glum.
One could argue that the retail sector as a whole is under fire, and they’d be right, but the way that management at TGT has dealt with the issue suggests that Target stock has another year of struggling ahead. Target has been suffering from lackluster financials, the fallout from its bathroom policy decisions and worries about whether the store’s online offerings are enough to keep it afloat. However, in the coming year, it’s TGT’s food business that investors should be concerned about.
TGT’s Failed Food Revamp
When Target CEO Brian Cornell took over two years ago, he said he wanted to improve the company’s grocery business by building out the store-brand and offering more selection to shoppers. This appeared to be a worthwhile cause, especially since TGT’s key competitors Wal-Mart Stores (NYSE:WMT) and Costco Wholesale Corporation (NASDAQ:COST) have made vast improvements to this area of their own businesses.
However, fast forward to the present and you can see that Target’s grocery business is struggling. Anne Dament, the woman Cornell charged with shaping up TGT’s food business, stepped down in November. This came after the firm reported that grocery sales were down in the second quarter, hinting that the grocery overhaul wasn’t going as well as planned.
Why Does This Matter for Target Stock?
The struggle Target is facing with its grocery business is a big deal for two key reasons — first, it represents a huge draw for shoppers. Grocery shopping is a huge driver of store traffic and it remains one of the only types of retail that many shoppers actually prefer to shop in person rather than online.
While its true that food shopping is also beginning to shift toward online and click-and-collect services, building out its grocery offerings would be a solid way for TGT to keep shoppers coming back to its stores and gives the firm some clout should it want to offer an online grocery service down-the-road. Not only that, but Target’s competitors like WMT have also — more successfully — begun building out their grocery options, so the company’s failure in this sector makes TGT stock look even less appealing.