The holiday season was not very exciting for most retailers. Lower demand, customers' unwillingness to spend, and an unusually cold winter took a toll on retail sales. However, Target's (TGT 2.85%)quarterly woes were compounded by a massive data breach that turned consumers particularly chilly toward the big-box retailer. Although the numbers were not as bad as expected, Target posted declines in both the top and bottom lines in its latest earnings report.
A host of factors dragged revenue down
Hit by a number of factors, Target's fourth-quarter revenue dropped 3.8% from the previous year to hit $21.5 billion. The primary reason for the loss of sales, during the most crucial period of the year, was the theft of personal credit card data from as many as 110 million customers, Forbes reported. The announcement of the data theft in December kept customers away from Target's stores, resulting in a same-store sales decline of 2.5%.
Second, the retailer's expansion in Canada has been quite difficult. Target opened 124 stores in Canada, giving way to the first of its international expansion, last year on the expectation of great demand for its products. However, higher prices in the Canadian stores and price cuts by the existing players in the nation hampered Target's sales.
In addition, cold weather also affected sales since less people went to malls and stores.
The company had to offer discounts and increase its promotional efforts in order to lure customers during the key holiday period. This -- and the other factors already described -- contributed to almost halving the bottom line to $520 million during the quarter.
Target not alone in suffering
Although problems related to the data breach and expansion in Canada were specific to Target, other industry players are also facing lackluster performances. Wal-Mart (WMT 1.01%) posted fourth quarter results that could not match up to investors' expectations. Weakness in U.S. consumer spending and the severe winter led to a decline of 0.4% in both domestic same-store sales and in total sales from the international segment. However, overall revenue for the quarter inched up by 1.4% to $129.7 billion. The retailer has been expanding its footprint by opening smaller stores in urban areas which has made it easier for customers to access Wal-Mart locations. The smaller-format stores also require lower costs to operate. Therefore, the company announced it plans to open another 270 to 300 stores during the current year.
Similarly, Sears Holdings (SHLDQ) registered a revenue plunge of 13.6% to $10.6 billion in its recently reported quarter. Same-store sales fell 6.4% compared to the year-ago period as customers showed little interests in its products. Sears, too, has been trying to attract customers by undertaking various strategies, including the "Shop Your Way" program. This program allows customers to earn points on their purchases which can be redeemed at any time. Sears has also introduced a new parcel drop-off service which enables customers to collect their parcels without getting out of their cars.
It will be interesting to see how each of these retailers will fare in their mission to increase sales going forward.
What does the future have in store?
While Target suffered largely in its fourth quarter, the retailer is well prepared to recover from the loss quickly. It has already strengthened marketing efforts and promotional techniques aimed at winning back lost customers. A 10% additional discount did work as the retailer declared smooth sales in January.
The retailer plans to invest $5 million to enhance its cybersecurity and data privacy. Moreover, the company has been taking initiatives to strengthen its online product assortments, including acquiring Cooking.com, Dermstore, and CHEFS Catalog.
Target also introduced a mobile saving tool, Cartwheel, which has helped increase digital traffic of the company. These efforts, along with newly launched additional in-store pick-up service, should help the retailer draw customers into its stores frequently.
Target has undertaken a number of measures to overcome prevailing obstacles. With a better product portfolio and an increased marketing effort, the company should be able to win back lost customers. Like Wal-Mart,Target has resorted to smaller-format stores which should help in lowering costs. Despite its troubles, investors should give this company a second thought.