Target Sees Margin Squeeze As It Spends More To Meet Coronavirus-Led Demand
Target Corp has said that rising costs from trying to meet the fast-changing needs of consumers during the coronavirus crisis were set to hurt its first-quarter profit and margins, even as it recorded robust online sales during March and April.
The big box retailer said digital comparable sales surged more than 275% in April, with several days in the month recording more online sales than Cyber Monday, traditionally the busiest day for e-commerce companies.
However, shares of the retailer fell nearly 3% after the company said it expects margins to drop by 5-percentage points in the first quarter due to temporary wage increases and higher sales of more low-margin products such as groceries.
The company now plans to pay an extra $2 an hour for store and distribution center workers until May 30.
Target also said it had to write down the value of its inventory for apparel and accessories as shoppers confined to their homes refrained from refreshing their wardrobe, leading to a 40% drop in comparable sales so far in April.
Target, along with Kroger and Costco, are among the few companies that have seen a net benefit in sales from consumers stockpiling essentials.
Other players in retail, especially apparel chains and department stores, have taken a big hit from the pandemic, with some of them on the verge of filing for bankruptcies.
"Watching the retail industry decline is not something I enjoy, but I think going forward we're going to see significant market share opportunities, across our apparel business," Target Chief Executive Officer Brian Cornell said on a media call.
"That'll be a benefit to us. But unfortunately, it will come at the expense of others who are closing their doors and potentially no longer operating in this future environment."