Target invests $5 billion in larger stores expansion despite weak sales

Target is moving ahead with plans to expand its footprint with new, larger stores despite weak sales.

The Minneapolis-based retailer announced last week during its earnings call that it will invest billions to upgrade existing locations and open additional large-format stores as it works to reverse its declining sales and return to profitable growth.

The company intends to increase capital expenditures — money it invests in long-term assets such as technology and infrastructure — to $5 billion in the next fiscal year, an increase of 25% or nearly $1 billion more than in 2025.

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New CEO Michael Fidelke said the company will use increased capital spending to upgrade its supply chain, technology and master layouts of its sales floors. He added that the improvements will enhance Target’s marketing strategy and enhance the in-store shopping experience.

Fedelke said investment will also go toward building new large-format stores, which he told analysts “exceed our initial sales expectations and remain a strong source of growth.” Given the company’s current real estate opportunities, Fidelke said Target expects to “continue to open these larger boxes in more and more markets across the United States.”

“Our investments in new stores, store remodels and category changes chain-wide are aimed at providing more inspiration and delight to our guests every time they shop,” he added.

It’s part of a strategy used by Fiddelke, who will replace Brian Cornell as CEO in February, to steer the beleaguered retailer toward a more profitable future. Fiddelke is credited with being instrumental in building many of the company’s core strengths, holding leadership roles across trading, finance, operations and human resources.

Target will invest billions to upgrade existing locations and open additional large-format stores. (David Paul Morris/Bloomberg via Getty Images)

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But it has a long way to go in that turnaround, as the company reported another quarter of lower traffic and sales in stores last week. It was a stark contrast to the rival Walmartwhich recorded higher sales across categories even as consumers remain cautious in a challenging economy.

This gap between Walmart and Target is widening, Robbie Ohms, senior retail analyst at Bank of America Securities, told FOX Business. He pointed to the discrepancy between Walmart’s 5% gain in apparel sales last quarter and Target’s 2.7% store sales decline, driven by weak demand in discretionary categories such as home and apparel.

The target will raise capital expenditures to $5 billion in the next fiscal year. (Mario Tama/Getty Images)

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Ohms credited Target with its global sourcing operation, saying how analysts see it as perhaps one of the best companies in the world, allowing it to produce high-quality, private-label clothing and home goods at strong prices. Management may focus investment on merchandising and reconfiguring stores to better display those products rather than on automation or technology, Ohmes said.

But although renovating stores is necessary, he said it is not enough. Critically, Target also strengthens its digital, automation and supply chain capabilities to remain competitive with Walmart, which has made a lot of automation investments to catch up with Amazon, according to Omis. He pointed out that these investments are beginning to bear fruit.

“You need to have digital strength as well because your biggest and closest competitor, Walmart, has that digital strength. And that digital strength is gaining share. Walmart’s flywheel is gaining share,” Ohmes said.

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Not only is Walmart’s market broad, he noted, it gives the company insight into what products are selling well.

“They have 700 million items in that market so they can know, ‘Oh, this is what we’re seeing people buying,'” he said, adding that Target doesn’t have that advantage because it has a much smaller market.