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NEW YORK (AP) — Target, looking for ways to turn around a sales malaise, is entering Amazon territory: the paid membership game.
The Minneapolis discounter said Tuesday that the new paid program, called Target Circle 360, will offer unlimited free same-day delivery in just one hour for orders over $35 and free two-day shipping. It will launch with a special offer for new members for $49 per year from April 7 to May 18. After that, it will cost $99 per year. But Target Circle credit cardholders can sign up for the lowest price at any time.
The discounter said its current Target Circle program has more than 100 million members who shop and spend more than five times as much as non-members.
The launch of a new paid membership program was one of several key moves announced at Target’s annual investor meeting on Tuesday that aim to rejuvenate sales and traffic. The discounter also said it will renovate its stores and expand its successful private labels, which combined generate $30 billion in sales. And over the next decade, the chain will build more than 300 new stores.
The investor meeting comes as the latest financial results show Target shoppers remain cautious about spending on discretionary items as they come under pressure. because of inflation and high borrowing and credit card costs. The company reported its first annual decline in sales (1.7%) in seven years.
Target posted a 58% jump in fourth-quarter profit and handily beat Wall Street expectations as the retailer cut costs and kept inventory lean during the critical holiday season.
Revenue rose slightly in the latest quarter from a year ago and also beat projections. But comparable sales (those of stores or digital channels that have been in operation for at least 12 months) fell 4.4%. However, the declines slowed compared to the 4.9% drop in the third quarter and 5.4% in the second.
Target offered a cautious outlook on sales and profits, indicating that sales will not recover quickly. Still, investors generally liked the news, sending shares up more than 12% in afternoon trading.
“This is a unique time to clarify our roadmap for growth,” Target CEO Brian Cornell told investors at the meeting in Manhattan. “We are going to be very focused on gaining market share.”
Target is more vulnerable than Walmart and other big discounters. More than half of its annual sales come from discretionary items such as toys, fashion and electronics, things that many Americans have stopped buying.
But Target has also stumbled from its own mistakes. For several quarters, it had to correct its inventory levels after being overwhelmed by overstocked warehouses in the summer of 2022. The excess inventory forced it to take deep discounts to clear out those products.
Target has been trying to strike the right balance between offering value for money while infusing its stores with trendy products. Last month, the retailer launched a new collection called Dealworthy that features nearly 400 everyday essentials starting at under $1, with most items costing under $10. They include clothing and accessories, home goods and electronics.
At the same time, Target’s deal, closed last year, with the designer Kendra Scott offering exclusive collections of earrings and necklaces has resonated with shoppers. The same goes for its new brand of kitchen utensils under the discount store’s own brand Figmint.
As for its loyalty programs, Target said it saw a need to make its free Target Circle program easier to use. This way, members will see offers applied automatically at checkout so they don’t have to search for or add individual offers.
Target also renamed its Target RedCard credit card program to Target Circle to make it easier for credit cardholders to access Target Circle benefits, like an extra 5% instant discount on top of Target offers Circle. It also allows credit card holders to get an additional 30 days to return an item in addition to the usual 90-day period.
By comparison, an Amazon Prime membership, launched in 2005, now costs $15 a month or $139 a year and includes free streaming of your Amazon Video, among other perks. Meanwhile, Walmart launched its paid membership program called Walmart Plus in 2020: Members get free shipping for $12.95 per month or $98 per year.
Cara Sylvester, Target’s chief guest experience officer, told investors she was considering a number of perks to add to the paid program, but said they were going to listen to what shoppers wanted.
When asked how Target could compete with Prime Membership giant Amazon, Cornell told The Associated Press that “it’s not like we’re starting from scratch.” He noted that the company is leveraging the “power of the Target brand and the Target Circle brand.”
Target reported net income of $1.38 billion, or $2.98 per share, for the three months ended Feb. 3. That compares with $876 million, or $1.89 per share, for the year-earlier period. Final results for the latest quarter far exceeded estimates of $2.42 per share, according to FactSet.
Revenue rose 1.7% to $31.92 billion, above projections of $31.83 billion.
Combined traffic in both stores and online fell 1.7% last quarter, but that was an improvement from the 4.1% drop in the third quarter.
For the current quarter, Target expects a comparable sales decline of 3% to 5%. Analysts expect a 3.6% drop, according to FactSet. It forecast adjusted earnings per share to be in the range of $1.70 to $2.10. Analysts expect $2.08 per share.
For the full year, Target anticipates flat comparable sales up 2%. Adjusted earnings per share should range between $8.60 and $9.60, Target said. Analysts expect $9.15 per share, according to FactSet.
Target shares rose $18.38 to $168.88 in afternoon trading Tuesday.