Why Target Is Consolidating Its Mobile Apps
Target (NYSE: TGT) recently announced that it plans to consolidate its two discrete apps, the Target app and savings app Cartwheel, into one app later this summer. Target also plans to significantly upgrade the Target app with an indoor map that shows your location in the store, along with nearby Cartwheel deals. In addition, the company also plans to introduce mobile payments to the Target app, sometime later in this year. By the look of things, this integration seems to be in line with the likes of both Wal-Mart (NYSE:WMT) and Amazon (NASDAQ:AMZN), who already have their individual apps for buying and applying coupons together.
Cartwheel has become a popular app, with over 27 million users having saved up to $1 billion using the app, which offers coupons that save 5% (or more) on selected items. However, many Target customers are not even aware of its existence. The addition of Cartwheel to the Target app should improve its awareness, and consequently its use, which could in turn boost Target’s sales since the company is already seeing pressure on its comparable sales growth due to declining traffic.
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Target aims to eliminate customer confusion over having to switch between apps for important tasks with this consolidation. Moreover, the company continues to make a push into e-commerce and an omni-channel model with such initiatives to remain competitive in the long term, as a result of intense competition from other retailers.
Target is in a transition phase right now, as it is looking to transform its business model. The company invested nearly $500 million in the first quarter as part of the store transformation plan, which also included the expansion of small format stores. Going forward, the retailer plans to invest more than $2 billion this year during this transition phase. This strategy includes revamping stores, supply chain improvements and increased promotions (estimated investment of $7 billion over the next 3 years), and lower everyday pricing.
We expect the retailer’s revenue per square foot to decline to $284 this year, due to declining traffic at the stores. However, the company’s ongoing initiatives could definitely lead to some improvements – small store expansion, growth in online business, increased penetration of REDcard holders, growth in signature categories – in the coming years that could boost the revenue per square foot marginally to $292 by the end of our forecast period. On the flip side, if the figure declines to $282 on account of sluggish economic recovery and self-cannibalization, there could be a 5% downside to our price estimate.
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