Target highlights the slow death of brick and mortar

Target warns on weak 2017 earnings

Target earnings were slightly below estimates in Q4 but what has sent shares 14% lower today was weaker guidance for the year ahead.

The company forecast earnings of $3.80-$4.20 per share this year compared to the consensus estimate of $5.37. That"s after a 1.5% decline in same store sales with something similar forecast in the year ahead.

The only good news for the company was online where it reported a 34% rise in online sales. Despite that, just 6.8% of Q4 sales were online. That leaves the other 93.2% in jeopardy.

To compete, the company said it will lower prices along with a "smart network of physical and digital assets".

"We will invest in lower gross margins to ensure we are clearly and competitively priced every day," Target CEO Brian Cornell said in a statement. 

The bigger picture

The shift to online sales shouldn"t be a surprise to anyone but it"s consistently happening faster than retail executives expect, even as they ramp up targets.

What"s scary is that we are likely nearing a tipping point. There is almost nothing you can"t buy online and a world of free shipping and sub-2 day delivery is near.

The shift will be massively disruptive. No amount of warehouse employees and delivery drivers will replace the retail workforce. Stores will be hollowed out.

The second result is disinflation. Target is shifting to model of competing on price with Wal-Mart and online. The company is also rolling out smaller stores and COO John Mulligan said soon most stores will be shipping orders "from the back room."

Target highlights the slow death of brick and mortar
Target highlights the slow death of brick and mortar
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