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Target had a rough 2016 – and digs in on long-term plans for a turnaround

NEW YORK — Target executives on Tuesday said they are digging in for a long-term and wide-ranging overhaul of their business, a move that reflects a grim reality for the big-box chain: 2016 was a tough year in which it saw its momentum blunted.

Foot traffic slid at its stores last year, the company said, and so did sales at its locations open more than a year.

In a presentation for financial analysts, Target leaders outlined a series of investments it plans to try to re-energize the chain. It will remodel some 600 of its 1,800 stores by 2019 and take action to make sure its prices are more competitive with those of key rivals, especially on household essentials.

And it will plow money into developing and marketing 12 new private-label brands, exclusive home and apparel lines that the retailer hopes will help it stand out in a noisy shopping environment and attract more customers.

As investors pummeled the stock, sending it down some 13 percent in morning trading, executives sought to reassure Wall Street that these and other expensive initiatives, such as bolstering its supply chain, are a bitter but necessary pill to swallow in order to gird the company for the retailing environment of the future. Shoppers are spending more dollars online, and when they do visit a physical store, they’re often looking for it to be an experience, rather than a mundane errand.

“To get where we want to go, we know we can’t fix it on short-term opportunity. Target is taking a long view,” said Brian Cornell, Target’s chief executive officer, during the presentation.

The company will undertake $7 billion in capital investments over the next three years, expenditures that are likely to weigh on its profitability.

Target laid out its plans as it reported disappointing earnings for the quarter that included the crucial holiday season. Comparable sales, a measure of sales online and at stores open more than a year, slipped 1.5 percent. And the big-box chain doesn’t see that improving much any time soon: For the full year ahead, it expects a “low-single digit decline” on this measure.

In order to help turn the tide, Target stressed that it will be especially focused this year on delivering attractive prices, even if doing so eats at margins in the short-term. Executives said they’ll be trying to move away from promotions, particularly on basics such as food and personal care items, and trying to get back to a model focused on everyday low prices.

As part of its effort to lure millennial shoppers, the chain plans to move quickly to remodel its stores. Cornell noted in his remarks that, in many cases, Target stores are located in buildings that “don’t match the brand” and haven’t been renovated in years. The refreshed outposts will have more space devoted to “visual storytelling” — in other words, to displays that show you how to use several garments to put together a complete outfit, or that show you how to use several decorative items to spruce up your living room. These stores will also be rethought with an eye toward the growing importance of e-commerce: More space will be allocated for “buy online, pick up in store” counters, and backrooms will be designed to efficiently fulfill these and other types of orders.

The company expects it will see a sales lift of 2 to 4 percent at the stores where it implements these changes.

In addition to remodeling stores, Target will speed up its march into urban neighborhoods and college campuses, opening 30 of its small-format stores in these kinds of locations in 2017.

Target’s revenue in the fourth quarter slipped 4.3 percent to $20.69 billion, a decline that in part reflects the sale of its pharmacy business to CVS. Profit fell nearly 43 percent to $817 million.

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