While many retailers got battered in the course of the coronavirus pandemic, Target (NYSE: TGT) has managed to thrive, with its most recent quarterly earnings well exceeding investors' expectations. The big-box giant closed out the fiscal quarter ended Jan. 30 with $28.34 billion in revenue -- almost a solid $1 billion above Wall Street's projections.
Playing on its recent success, Target is now making plans to expand its footprint. And while that could end up being very good news for shopping centers, it's also not the best news for malls.
Investing in added growth
Earlier this month, Target announced plans to expand on its recent growth by investing about $4 billion annually over the next few years to bring new stores into the market, remodel existing stores in need of a face-lift, and increase its ability to fulfill online orders quickly by adding new distribution centers. In the coming year specifically, Target intends to try out new ways to improve customer service, test tech-enabled options for restocking shelves, and try out new hubs that sort through packages, making it easier and more efficient for employees to pack online orders.
Going into the pandemic, Target had the advantage of already being an essential retailer, so unlike other stores, it was never forced to shutter earlier in 2020. But much of Target's success during the pandemic stemmed from the fact it ramped up its fulfillment options for online orders. Consumers who shopped digitally could choose between same-day shipping, standard shipping, and curbside pickup in parking lots to avoid having to physically walk into a store. Target is now looking to streamline the order fulfillment process even more.
But while online orders do comprise a large chunk of Target's business, its physical stores are also a shopping destination for consumers -- and the retail giant now has a real opportunity to build on that. Target has already teamed up with several key partners, including Ulta Beauty (NASDAQ: ULTA) and Apple (NASDAQ: AAPL), to open store-in-store shops. If it increases its partnership base in conjunction with its physical expansion plans, it could really end up pulling customers away from malls.
Good for real estate investors?
Big-box stores, by nature, are competition for malls, but Target in particular has the potential to take mall customers away, especially now that it's building out specialty shops within its stores. And at a time when foot traffic at malls is already sluggish, Target's increased success could negatively impact mall REITs (real estate investment trusts).
On the other hand, Target's expansion plans are good news for shopping centers, which commonly rely on the big-box giant to serve as an anchor tenant. And given the company's financial stability, those could be some pretty lucrative leases to sign.
All told, Target is emerging from the pandemic as a real powerhouse with the potential to take business away from big-box competitors and malls alike. Real estate investors should watch Target closely this year, especially as it makes good on its plans to grow its brand and increase its presence in shopping centers across the country.