Target launches new paid membership program in a bid to drive sales at a time of cautious spending

NEW YORK (AP) — Target, looking for ways to reverse a sales malaise, is getting into Amazon territory: the paid membership game.

The Minneapolis discounter said Tuesday the new paid program, called Target Circle 360, will offer unlimited free same-day delivery in as little as an hour for orders over $35 and free two-day shipping. It will launch with a special offer for new members for $49 per year from April 7 through May 18. After that, it will cost $99 per year. But Target Circle credit card holders can sign up for the lower price anytime.

The discounter said its current Target Circle program has more than 100 million members who shop and spend more than five times more than non-members.

The launch of a new paid program was one of several moves announced at Target's annual investors’ meeting that aim to rejuvenate sales and traffic. The discounter also said it will refresh its stores and expand its highly successful store-owned brands. And over the next decade, the chain will build more than 300 new stores.

The meeting came as the latest financial results show Target’s shoppers remain cautious about spending on discretionary items as they're squeezed by inflation and high borrowing and credit card costs. The company reported its first annual decline in sales — 1.7% — in seven years.

Target delivered a 58% increase in fourth-quarter profits and handily beat Wall Street expectations as the retailer cut costs and maintained a lean inventory during the critical holiday season.

Revenue rose slightly in the latest quarter from a year ago and also topped projections. But comparable sales — those from stores or digital channels operating at least 12 months — slipped 4.4%. The declines, however, slowed compared with the previous two quarters.

Target offered a cautious outlook on sales and profits, indicating sales won't rebound quickly. Still, shares rose by 12%, or $18.09, to close at $168.58.

“This is a unique moment to clarify our roadmap for growth,” Target’s CEO Brian Cornell told investors at the meeting in Manhattan. “We are going to be razor-focused on taking market share.”

Target is more vulnerable than Walmart and other big box discounters. More than half of its annual sales come from discretionary items like toys, fashion and electronic gadgets, things that many Americans have pulled back on buying.

Even luxury shoppers have remained discerning. Upscale department store Nordstrom announced fourth-quarter sales results Tuesday that were above analysts' expectations, but it said its sales could decline in the current year.

But Target has also stumbled because of its own mistakes. For several quarters, it had to right its inventory levels after being burdened with heavily stocked warehouses in the summer of 2022. The inventory glut forced it to discount heavily to clear out those goods.

Target has been trying to strike the right balance between offering value while also infusing its stores with trendy goods. Last month, the retailer launched a new collection called Dealworthy which features nearly 400 everyday basics like socks and small gadgets starting at less than $1, with most items under $10.

At the same time, Target's deal, struck last year, with designer Kendra Scott to offer exclusive collections of earrings, necklaces has resonated with shoppers. So has its new kitchenware brand under the discounter's own label Figmint.

As for its loyalty programs, Target said it saw a need to make its free Target Circle program easier to use. So members will see deals applied automatically at checkout so they don't have to search for or add individual offers.

Target also renamed its Target RedCard credit card program to Target Circle to make it easier for credit card holders to access Target Circle benefits like an extra 5% discount instantly on top of the Target Circle deals. It's also allowing credit cardholders to get an extra 30 days to return an item on top of the regular 90-day window.

In comparison, an Amazon Prime membership, launched in 2005, now costs $15 a month or $139 annually and includes free streaming of its Amazon Video, among other perks. Meanwhile, with Walmart paid membership program called Walmart Plus, launched in 2020, members get free shipping for $12.95 per month or $98 per year.

Target told investors it was considering a number of perks to add to the paid program, but it was going to listen to what shoppers want.

When asked how Target could compete with Amazon's Prime Membership juggernaut, Cornell told The Associated Press that “it's not like we’re starting from scratch.” He noted the company is tapping into the “power of Target brand and the Target Circle brand.”

Target reported net income of $1.38 billion, or $2.98 per share, for the three-month period ended Feb. 3. That compared with $876 million, or $1.89 per share, for the year-ago period. The bottom-line results for the latest quarter well surpassed estimates of $2.42 per share, according to FactSet.

Revenue rose 1.7% to $31.92 billion, above projections of $31.83 billion.

Traffic for both stores and online combined fell 1.7% during the latest quarter, but that was an improvement from the 4.1% drop in the third quarter.

For the current quarter, Target expects a comparable sales decline of 3% to 5%, in line with analysts' estimates for a 3.6% drop. It forecast adjusted earning per share to be in the range or $1.70 to $2.10. Analysts expect $2.08 per share.

For the full year, Target anticipates comparable sales unchanged to up 2%. Adjusted earnings per share should range from $8.60 to $9.60, Target said. Analysts are expecting $9.15 per share, according to FactSet.