The company is restructuring to save $2 billion
Target announced on Tuesday that it plans to cut “several thousand” jobs over the next two years as part of the retail giant’s restructuring and $2 billion savings plan.
The Minneapolis-based company, which employs 350,000 people globally and has roughly 1,800 box stores, said in a statement it will eliminate the positions while creating “centralized teams based on specialized expertise.”
“The restructuring will be concentrated at Target’s headquarters locations and focus on driving leaner, more efficient capabilities, removing the complexity and allowing the organization to move with greater speed and agility,” the statement continued.
The savings are intended to drive sales and earnings growth as the company recovers from the 2007-08 financial crisis and a major data breach in late 2013, while investing heavily in technology to improve its e-commerce offerings.
Macy's, Target, J.C. Penney, and other stores are getting creative in their quest to boost sales, or at least stay alive and relevant, in an increasingly crowded and complicated marketplace.
The all-purpose American department store is “dying.” We’ve heard this for years, to the point that the retail category is not unlike the old man in the classic Monty Python scene who is loaded up on a cart of corpses despite his protest, “I’m not dead!”
Yet while we’ve witnessed the collapse of Radio Shack and various teen fashion retailers, as well as the larger struggles of malls as a whole, the old-fashioned department store is, well, not dead yet. In fact, this week, a round of earnings reports revealed generally good sales performances in the fourth quarter—and during the all-important holiday period in particular—from Dillard’s, Target, and Kohl’s, among others. Sears sales were down for the 11th quarter in a row, but even its report was viewed as decent because the company lost significantly less than it did in the same period a year prior. J.C. Penney surprisingly posted a loss for the quarter as well, though comparable store sales were actually up 4.4%.
Even with the mostly positive earnings reports, Target’s failed expansion in Canada, as well as the trend to shutter more and more Target, Sears, Macy’s, and J.C. Penney stores in the U.S., demonstrates that while department stores are alive, they’re hardly kicking butt.
To avoid being written off for dead alongside Radio Shack, here are a handful of strategies you’re going to see more of from department stores:
Trying out new store models. This week Macy’s announced intentions to create a new off-price retail brand that would compete with discounters like TJ Maxx and highly successful “fast fashion” chains such as H&M and Forever 21. Meanwhile, Kmart is testing out a smaller store format, and Target is expanding its “Express” small-store model to more markets. Walmart has been going small too, with more non-supercenter “market” locations. Overall, the strategies show that the large department stores and discounters acknowledge that the one-size-fits-all approach is flawed, especially when the size in question is a hulking big box store.
Pushing web sales hard. Target offered free, no-minimum-purchase shipping for all online purchases throughout the 2014 winter holiday period. The move helped long-struggling “Tarjhay” increase digital sales by 30% for the year as a whole. Now it looks like Target is doubling down on its e-retail offensive, with this week’s decision to cut the minimum-purchase threshold for free standard shipping from $50 to $25—a change that undercuts Amazon, Best Buy, and Walmart, among others.
For its part, the world’s largest retailer is well aware that more shoppers are “omniconsumers” who make purchases via all channels, and it’s trying to win their sales at every turn. “No doubt business is going increasingly mobile and increasingly online,” Walmart CEO Doug McMillon told the Associated Press recently. “We don’t really care how the customers want to shop. We want to be in the position to serve them in any of those ways.”
Going old school with marketing. While virtually all retailers are seeking to juice web sales to compete with the likes of Amazon, J.C. Penney is trying to achieve this goal in an old-fashioned, seemingly unorthodox way. Starting in March, the department store that’s undergone several (mostly unsuccessful) makeovers in recent years will start mailing its oversized catalog to customers yet again. And one reason why they’re using this tool is that consumers are more likely to order merchandise online with a catalog in front of them.
Going invasively new school with sales pitches. Macy’s, Neiman Marcus, and Lord & Taylor are among the major retail chains that have taken the potentially creepy step of deploying wireless beacons that detect shoppers’ precise locations inside stores and send them info via smartphone about discounts, promotions, and special events.
Discounting in ways old and new. Discount-heavy Kohl’s, where you can “save” $2,136 on a $242 shopping excursion, and where no one in their right mind pays full price for anything, had an especially strong holiday quarter with 3.7% growth in sales, beating expectations of 2% to 3%. One thing this tells us is that the age-old sales tactic of “price anchoring,” in which “regular,” “original,” “suggested,” and “compare to” list prices are inflated so that the inevitable discounts seem all the more impressive, remains a surefire way to sucker shoppers into buying.
On the new frontier of discounting, Target is testing out a strategy from the playbooks of supermarkets and drugstore chains, quietly launched a rewards program mobile app in beta. Members get 10 points for every $1 they spend at Target, and 5,000 points can be traded in for 5% off your next total purchase at the store. For now, the program, called REDperks, is available on an invitation-only basis, and only in select markets.
The retail giant's customers are less and less satisfied with its services
Wal-Mart’s announcement on Thursday that it would start paying its employees more and training them better, and would invest more heavily in online operations, almost seems like it could have been a reaction to a survey released a day before, ranking the company as “the most hated retailer in America,” as several news outlets have put it.
It wasn’t, of course. Wal-Mart’s plans had clearly been in the works for quite a while. But those plans, announced as the retail giant issued fairly weak quarterly results, address some of the biggest reasons for Wal-Mart’s ranking at the very bottom of the American Customer Satisfaction Index for 2014: poor service; messy or understocked shelves; and higher prices than many consumers expect.
The survey polled 8,700 consumers. It found overall satisfaction with retailers down by 1.4% over last year, mainly due to higher prices—a sudden reversal after three straight years of rising satisfaction. Wal-Mart’s score of 68 (on a scale of 100) was its worst since 2007, and continues a trend. In four of the past five years, it has scored the lowest of all department and discount stores. This year, it scored the lowest among all retailers. Just a decade or so ago, it regularly scored near the top.
On Thursday, Wal-Mart announced it would boost employee pay to a minimum of $9 an hour, which will put Wal-Mart’s lowest salaries 24% above than the $7.25 federal minimum wage. Some 500,000 workers, or about a third of Wal-Mart’s U.S. work force (including at the Sam’s Club warehouse-store chain) will be affected. It will, of course, eat into profits. Wal-Mart said the short-term hit would yield longer-term benefits down the road, as happier, better-trained, longer-tenured employees will translate into more customer traffic. The wage hikes and improved training will cost Wal-Mart about $1 billion this year.
The action will result in average hourly full-time wages at Wal-Mart rising to $13 an hour from below $12 an hour. That’s still below the $15 per hour demanded by pressure groups, some including Wal-Mart workers, that have been seeking pay hikes from big retailers and fast-food chains.
Wal-Mart also pledged to invest more in its e-commerce operations. The ACSI report noted that even as overall satisfaction with retailers fell by 1.7%, satisfaction with online retailers rose by 5.1%, to 82 out of 100.
That was due in part to a dip in satisfaction the previous year due to a spate of delivery problems, particularly during the holiday season. Still, it points to a big problem brick-and-mortar retailers — even those, like Wal-Mart, with substantial investments in e-commerce: the convenience of online shopping is tough to beat. There’s no such thing as a surly employee or a messy shelf. And what you’re looking for is generally in stock.
Hence Amazon’s place at the top of the list, with a score of 86. In the discount and department store category that Wal-Mart belongs to, Nordstrom was tops, also with an 86. Target tied with Kohl’s at No. 3, each scoring an 80.
So that's $25 million divided by 9...
The world’s largest retailer announced wage hikes for its U.S. employees Thursday, raising its minimum hourly wage to at least $9.
Wal-Mart made the announcement as part of its latest quarterly earnings report and said the increase will cost the largest private employer in the country about $1 billion.
Just for fun, Fortune wondered how many hours it would take a Wal-Mart employee earning the increased minimum salary to earn the same amount of compensation as CEO Doug McMillon. The answer? It would take more than 2.8 million hours of earning $9 per hour to reach the roughly $25.6 million in compensation McMillon earned in 2014, his first year on the job. (That number would come down to roughly 2.6 million hours with next year’s additional hourly increase.)
For those wondering, there are only 8,760 hours in a calendar year and the U.S. Office of Personnel Management estimates the average number of actual work hours in a year to be 2,087. Using the latter figure, a Wal-Mart employee earning the new minimum hourly wage of $9 per hour would have to work more than 1,360 years in order to equal McMillon’s 2014 compensation.
The total compensation for Wal-Mart’s CEO last year included a base salary of about $950,000, plus more than $23 million in stock awards, along with additional incentives.
McMillon took over for former Wal-Mart CEO Mike Duke a year ago amid a string of disappointing quarterly U.S. sales numbers for the retail giant. McMillon’s promotion earned him a hefty raise last year after he took home around $10 million a year earlier as head of the company’s international business. In the most recent quarter, Wal-Mart reported a better-than-expected U.S. sales bump as well as a 1.4% increase in total revenue.
The news comes at a time of intense debate over what constitutes fair pay for low-wage workers and it follows protests last fall by Wal-Mart employees seeking a base pay of $15 per hour for all company employees. The company’s planned wage hike, which will go into effect in April, doesn’t go quite that far, but it does outpace the federally mandated minimum wage by $1.75 per hour. Wal-Mart also said its minimum wage will go up again next year, to $10/hour.
Labor groups have long argued that Wal-Mart should pay its low-wage employees more and Fortune’s Stephen Gandel wrote two years ago that the retail giant could even afford to increase its workers’ pay by 50% without disappointing its shareholders and bondholders.
The pay hike comes after a strong holiday season for the retail giant+ READ ARTICLE
Wal-Mart is celebrating a surprisingly strong U.S. holiday season by spreading the wealth a bit.
The world’s largest retailer and the nation’s largest private employer is increasing hourly wages for its current U.S. store associates to more than $9 per hour or higher beginning in April. That increase is at least $1.75 above the federally mandated minimum wage. The decision will impact thousands of full and part-time U.S. employees.
Here are some other key points from Wal-Mart’s latest earnings report.
What you need to know: Wal-Mart, often maligned by labor advocates that have long argued the retailer can pay its employees more, is seemingly heeding that call. Even Fortune’s Stephen Gandel has argued Wal-Mart could afford to pay its employees up to 50% more without disappointing Wall Street.
Wal-Mart isn’t aiming as high as Gandel suggested, but it is certainly making a notable move with the increase. Wal-Mart said by February of next year, all current U.S. associates would make $10 an hour or more. The company is also piloting a training program to help employees move out of entry-level positions and potentially make $15 an hour and more with increased responsibilities. Wal-Mart employees about 500,000 full-time and part-time associates at its’ U.S. Wal-Mart and Sam’s Club stores.
The pay hike comes as Wal-Mart reported a strong 1.7% increase in U.S. same-store sales, a key metric for retailers. That was better than the 0.7% jump that analysts had anticipated, according to a poll conducted by Consensus Metrix.
“Our fourth quarter was the first positive traffic comp we’ve had since the third quarter of fiscal year 2013,” said Greg Foran, Wal-Mart U.S. president and CEO. Wal-Mart booted traffic during the critical six-week holiday season, resulting in strong sales of toys, home, seasonal and apparel goods. Wal-Mart completed almost 1 billion total transactions during the holiday season, including a particularly strong Cyber Monday.
The big number: Wal-Mart’s overall total revenue climbed 1.4% to $131.57 billion for the fiscal quarter ended January 31. That wasn’t as strong as the $132.28 billion projected by analysts surveyed by Bloomberg. Wal-Mart’s top line results have frequently missed Wall Street’s expectations the past few years. Per-share adjusted earnings, meanwhile, totaled $1.61 versus the $1.54 predicted by analysts.
What you might have missed: While Wal-Mart ended the year on a high note, President and CEO Doug McMillion said “we’re not satisfied.” He and the leadership team says they want to continue to improve the customer experience, in part by better integrating physical stores with the company’s e-commerce and mobile commerce business.
“We have work to do to grow the business,” McMillion said. “We know what customers want from a shopping experience, and we’re investing strategically to exceed their expectations.”
Because of the higher wages and investments in training and e-commerce, Wal-Mart expects current-year operating profit to be pressured. Wal-Mart is spending about 20 cents per share for the full year on the higher wages and associate training and educational programs. As a result, Wal-Mart sees 2016 fiscal-year profit between $4.70 to $5.05 per share with sales expected to rise between 1% to 2%, hurt by some pressure from the stronger U.S. dollar.
The dream we never knew we had
Pizza Hut Australia has proved to be the best Valentine in the southern hemisphere if not, well, the entire universe.
As a part of a holiday promotion, the chain created limited-edition pizza-themed nail polish to bestow upon 30 people who wrote the best pizza-themed poetry. It’s the dream you never knew you had.
Colors include “Meat Me After Midnight,” “Dough You Need Me” and more pedestrian options like “Say Cheese.” Combined, these colors can create incredible nail art like this:
The only thing that could make this better was if the polish was scented. And, you know, available for purchase by the general public. Pizza Hut announced winners — and their cheesy poems — Monday:
He thinks he's the one man who should have all that power
Back before he was launching fashion lines, Kanye West was a lowly Gap retail employee who smoked weed on his work breaks. Now? He wants to be the creative director of the well-known clothing chain.
“I’d like to be the Steve Jobs of Gap,” West said in an interview with Style.com shortly after he debuted his Adidas Originals collection last week. “I’m talking about full Hedi Slimane creative control of the Gap is what I would like to do. And I can say this because it doesn’t conflict with my Adidas contract.”
In the interview, West talks about his desire to bring his fashion to the masses. The rapper has been working in the fashion world for several years and complained very, very loudly about how the powers that be wouldn’t let him get his ideas out. With Adidas, he thinks he has a chance to bring his apparel to a wider audience. Certainly Gap, with its thousands of retail locations, could extend that vision even more. And with the company having just posted a 9% decline in January sales at Gap stores, maybe it could use a bit of shaking up.
Once West is through eclipsing Steve Jobs, he’ll only have Walt Disney, Howard Hughes and William Shakespeare left to topple.
It's really just a result of smart branding
This Monday, Americans will enjoy their annual celebration of Presidents Day, a vague commemoration of all things presidential, one might think.
Think again. Here are three things you might not have known about Presidents Day:
Technically, it’s still “Washington’s Birthday”
According to section 6103(a) of title 5 of the U.S. Code, this Monday commemorates “Washington’s Birthday,” not “Presidents Day.”
The name change coincided with a Congressional initiative to attach federal holidays to the weekend, thereby creating an uninterrupted, three-day stretch of leisure time.
The Uniform Monday Holiday Bill, which hit the voting floor in 1968, nudged “Washington’s Birthday” from a fixed date, February 22, to every “third Monday in February,” i.e. not Washington’s birthday. But the name stuck.
Presidents Day is a brilliant stroke of branding
The ever-shifting holiday also happened to dance around Abraham Lincoln’s birthday, which several states marked as a separate holiday on February 12. Retailers, eager to promote discounts on both days, seized on the name “Presidents Day” to lure in shoppers regardless of which president they might happen to be celebrating. Gradually the catch-all term fell into common use.
It’s also not quite a holiday
Calling it a “holiday” doesn’t make it so. Yesware, an email analytics firm, crunched the numbers on 23 million emails circulating through corporate inboxes over the course of one year. Their finding: Open and reply rates on Presidents Day exceeded other federal holidays, and even a typical workday.
This is partly a function of workers receiving fewer emails overall, making a quick scan through the inbox a bit easier. It also suggests that when it comes to federal holidays, Presidents Day is the least sacrosanct.
“We are not afraid of yoga pants. I am on a mission to get women back into jeans”
In 2012, Levi Strauss CEO Chip Bergh announced to his staff a company-wide goal: Grow revenues as well as profits, modestly and steadily, year in and year out. While the target may sound somewhat modest for the largest jean maker in the world, it was a financial ambition that the 161-year-old family-controlled business had failed to achieve consistently for decades.
“If we want to be a great company, that is what great companies do.” Bergh said in a story from the October 6th issue of Fortune. “No matter what. No excuses.”
After reporting fourth quarter and fiscal year 2014 results Thursday, Bergh says he has no need to come up with any excuses. For the second year in a row, he hit his goal. Full-year revenues increased 2% to $4.8 billion. And while net income was down this year to $106 million, adjusted EBIT — the company’s preferred measure to track profitability — was $504 million last year compared to $467 million in 2013. In the Americas in the fourth quarter, revenues were up 8% to $894 million — largely based on Black Friday sales. The company also grew revenue in both Europe and Asia for the first time in three years.
Despite hitting his overall target, Bergh acknowledges there is much work to be done to make Levi the iconic brand and financially sound company he’d like it to be. The CEO’s vision is to make Levi the undisputed Goliath of denim it once was, but a fragmented denim market that is experiencing only modest growth is making that goal challenging to achieve.
A big part of Bergh’s strategy moving into 2015 is to make the Levi brand more relevant for women. After missing key trends in the past like colored denim and stretchier fabrics, the company is laser-focused on enhancing its offerings for female customers. “I don’t know how many times we’ve done this,” Bergh said on an earnings call Thursday referring to efforts to revamp Levi’s offerings for female customers. Yet Bergh is confident after marketing testing and research that the company’s latest offering for women, set to hit stores in the latter part of 2015, will be on target. The latest line might even help offset rapid growth domestic athletic apparel market bolstered by women trading in their favorite pair of jeans for yoga pants.
“I am very optimistic that we’ve nailed this,” Bergh said after the call in an interview with Fortune. “We are not afraid of yoga pants. I am on a mission to get women back into jeans.”
Bergh’s goal for 2015 is also to cut the company’s products for women by about half to “make shopping easier.” Although sales from women represent roughly 20% of annual revenue, the company makes 65 different fit blocks for three different women’s lines. That’s more than double the fit blocks they have for men.
“We do have quite a bit of complexity in the women’s market and it makes it tough to shop,” he said. “It is hard to figure the whole thing out.”
The data Levi gathered through November indicated that denim sales are still soft, particularly on the women’s side. Yet Bergh is still optimistic about what he predicts will lead to an upswing in the next six to 12 months. Denim has seen a pickup in runway shows and high-fashion lines recently, says Bergh, and quite often that translates to higher sales in the marketplace.
Despite the acknowledgment how high fashion can have a huge impact on retail sales, Bergh didn’t mention that New York Fashion Week just started this week. Despite the omission, Fortune can predict what garment he’s hopeful will frequently be coming down the runway.