MINNEAPOLIS, Minn. — Target, looking for ways to reverse sluggish sales, is moving into Amazon territory: the paid membership game.
The Minneapolis discount retailer said Tuesday that its new paid program, called Target Circle 360, will offer unlimited free same-day delivery in just one hour on orders over $35 and free two-day shipping.
It launches with a special offer for new members for $49 per year from April 7th to May 18th. After that, it costs $99 per year. However, Target Circle credit card holders can sign up for the lower rate at any time.
The company said its current Target Circle program has more than 100 million members who shop and spend more than five times more than non-members.
The launch of a new paid program was one of several moves announced at Target's annual investor meeting aimed at boosting sales and traffic. The retailer also said it would renew its stores and expand its highly successful own brands. And over the next decade, the chain will build more than 300 new stores.
The meeting came as recent financial results show Target shoppers remain cautious about spending on consumer goods as they are pressured by inflation and high borrowing and credit card costs. The company reported its first annual sales decline in seven years, down 1.7%.
Target posted a 58% rise in fourth-quarter profit, handily beating Wall Street expectations, as the retailer cut costs and maintained lean inventory during the critical holiday season.
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Sales increased slightly in the last quarter compared to the previous year and also exceeded forecasts. But comparable sales – those from stores or digital channels that have been in operation for at least 12 months – fell 4.4%. However, the declines slowed compared to the previous two quarters.
Target gave a cautious outlook for sales and profit, suggesting that sales will not recover quickly. Still, shares rose 12%, or $18.09, to close at $168.58.
“This is a unique moment to clarify our growth plan,” Target CEO Brian Cornell told investors at the meeting in Manhattan. “We will concentrate with all our efforts on gaining market share.”
Target is more vulnerable than Walmart and other large discount retailers. More than half of annual sales come from necessities such as toys, fashion and electronic devices, things that many Americans are wary of.
Even luxury buyers have remained discerning. Upscale department store Nordstrom reported fourth-quarter sales results Tuesday that beat analysts' expectations, but said sales could decline in the current year.
But Target has also stumbled because of its own mistakes. For several quarters, the company had to correct its inventory levels after being overwhelmed with overstocked warehouses in the summer of 2022. The oversupply of inventory forced it to discount heavily to sell out these goods.
Target has tried to find the right balance between offering value and enriching its stores with trendy goods. Last month, the retailer launched a new collection called Dealworthy, which features nearly 400 everyday basics like socks and small gadgets starting at less than $1, with most items priced under $10.
At the same time, Target's deal last year with designer Kendra Scott to offer exclusive collections of earrings and necklaces was well received by shoppers. This also applies to his new kitchenware brand under the discounter's own label Figmint.
As for its loyalty programs, Target said it sees a need to make the free Target Circle program more user-friendly. This means members see offers automatically applied during 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 card holders to access Target Circle benefits such as an additional 5% immediate discount on Target Circle offers. Additionally, credit card holders have 30 days to return an item, in addition to the regular 90-day period.
By comparison, an Amazon Prime membership launched in 2005 now costs $15 per month or $139 per year and includes free streaming of Amazon Videos, among other perks. With Walmart's paid membership program Walmart Plus, launched in 2020, members get free shipping for $12.95 per month or $98 per year.
Target told investors it was considering adding a range of perks to its paid program, but it wanted to listen to what shoppers want.
Asked how Target could compete with Amazon's Prime membership giant, Cornell told The Associated Press, “It's not like we're starting from scratch.” He noted that the company leverages the “power of the Target brand and the brand Target Circle”.
Target reported net income of $1.38 billion, or $2.98 per share, for the three-month period ended Feb. 3. In the same period last year it was $876 million, or $1.89 per share. Last quarter's final results significantly beat estimates of $2.42 per share, according to FactSet.
Revenue rose 1.7% to $31.92 billion, above forecasts of $31.83 billion.
Traffic both in-store and online fell 1.7% overall last quarter, but that was an improvement from the 4.1% decline in the third quarter.
For the current quarter, Target expects comparable sales to decline between 3% and 5%, in line with analyst estimates of 3.6%. Adjusted earnings per share are expected to be between $1.70 and $2.10. Analysts expect $2.08 per share.
For the full year, Target expects comparable sales to increase by an unchanged 2%. Adjusted earnings per share are expected to be between $8.60 and $9.60, Target said. Analysts expect $9.15 per share, according to FactSet.