What's going on?

Shares of Target dropped almost 5% on Tuesday as investors balked at fourth-quarter earnings in which the retailer reported growing sales but profit slightly below Wall Street�s expectations.

What does this mean?

Target�s been ramping up its spending of late (and thus eroding its profitability) in order to better compete in the changing world of American retail, increasingly defined by ecommerce giants like Amazon.


Target is spending $550 million on logistics startups Shipt to help roll out same-day shipping and plans to spend billions more redesigning its stores and better integrating technology into its shopping experience. The company also lowered its prices over the holiday season to attract more customers (aiming to sell more goods at lower margins). That specific approach seemed to have some success, with online sales increasing by 29% and in-store traffic up 3% in the fourth quarter versus a year ago.

Why should I care?

For markets: All that overhaul comes at a high price�

Investors who sold Target�s stock on Tuesday might be thinking that the company is spending too much on its turnaround. There might also be concerns over Target�s discounting of items in order to attract customers from competitors like Walmart and other long-term drags on profitability (like its pledge to boost its employees� wages over the next two years).

The bigger picture: Some old habits die hard.

Even though ecommerce has definitively upended traditional retail, Target says that the physical store remains �critically important� to its operations: it�ll have remodeled 1,000 existing locations by 2020 while opening dozens of new ones. Like many other old-fashioned retailers, Target is betting that people will still want to come into its stores as well as buy things online. Time will tell if this is a good bet � or if the retail experience will instead move almost entirely online.