Target will cut several thousand jobs, sharpen stores

NEW YORK – Target Corp. will cut several thousand jobs at its Minneapolis headquarters over the next two years, taking the knife to itself as never before as it adapts to changing shopper habits.

The move could deal a sharp blow to the downtown area, where Target is the largest employer with 10,000 people at its Nicollet Mall offices. The company aims to produce $2 billion in annual savings through the layoffs and other initiatives.

"It allows us to be a much more agile, effective organization," Brian Cornell, Target's chief executive, said Tuesday after a meeting with investors and analysts where the plan was revealed.

"These are some really tough decisions we've had to make, but these were the choices that were right for the business and right for our shareholders."

He declined to provide a more definitive number on the cuts and said he wants to handle the situation "as delicately as possible" in order to treat employees with respect.

Burt Flickinger III, managing director of Strategic Resource Group in New York, said the scope of the cuts was surprising. "With all the problems passed along from the prior management, we knew that the cuts would be high," Flickinger said. "But we did not anticipate that the cuts would be this high."

It's the second major step by Cornell, who joined Target last August, to shore up the nation's fourth-largest retailer, which has endured slow growth and several strategic missteps since the 2008 recession.

Target, which has about 350,000 employees globally, has 13,000 at corporate offices in Minneapolis and Brooklyn Park. Several thousand workers in Bangalore, India, are also considered part of Target's headquarters staff.

With Tuesday's move, Target becomes the third giant Minnesota company to announce a major, though imprecise, downsizing.

General Mills Inc., grappling with changes in food consumption, is cutting the jobs of several hundred of the approximately 5,000 people at its Golden Valley headquarters. Best Buy Co., the Richfield electronics retailer grappling with price pressures and uncertain growth prospects, has also cut people in recent years, though it said a new wave of cost cutting it announced Tuesday will not include job cuts.

The cuts at Target will be the largest ever seen at its headquarters, and the effects will ripple throughout the Twin Cities, particularly in downtown Minneapolis, which has been going through a boom period of development. Target cut 600 people at headquarters in 2009 and about 550 last year.

Andrea Christenson, a vice president at the DTZ real estate brokerage in downtown Minneapolis, said restaurants, bars, hair salons and other businesses downtown will be hurt as a result of Target's cuts. She added, "When I talk to my retail friends, they think it is short term. Target made a misstep, but I don't think it's catastrophic. And then they'll grow again."

Target will use the savings from the job cuts to pay for investments, such as $1 billion in planned enhancements to technology and supply chain operations. The savings will also help Target roll out ship-from-store capabilities to 350 stores this year, up from 136.

In a shift, Cornell said the company will be "agnostic" about whether shoppers buy items online or in its stores. Target's most profitable shoppers are those who shop it both online and in-store instead of just relying on the stores, Cornell said.

Executives said Tuesday they expect digital sales to growing at a 40 percent rate over the next few years, though that is from a low base. Digital accounts for only 2 to 3 percent of its overall business.

Target executives told analysts to expect 2 to 3 percent growth in sales over the next few years. Their profit outlook for this year, in a range of $4.45 to $4.65 a share, was above consensus forecasts and well above the $4.27 Target reported in per-share earnings for 2014.

One new initiative is a revamping of Target's grocery aisles, which account for about a fifth of its overall sales. Kathee Tesija, chief merchandising officer, said Target's food offering has suffered from a "lack of clear positioning." Target will retool it to focus on special occasions such as birthdays as well as to help families plan meals. The overhaul will also include more organic, natural and gluten-free items as well as more local foods.

Cornell also expressed enthusiasm for smaller formats, noting that CityTargets have twice the sales productivity as the retailer's typical big-box stores. But the retailer did not forecast its plan to open more such stores beyond the handful already announced for this year.

The last time Target held a large-scale meeting with investors and analysts was in October 2013. A lot has changed since then. The CEO who resided over that meeting, Gregg Steinhafel, was ousted last May and Cornell a few months later became the first outsider hired to lead Target.

In 2011, Steinhafel had laid out a plan for Target to grow sales from $70 billion to $100 billion over five years. But the company has since abandoned the goal. Target's 2014 revenue was $73 billion.

Dee DePass and Kristen Leigh Painter contributed to this report.

Kavita Kumar • 612-673-4113