Change is underway at Target Corp., new CEO Michael Fiddelke said, with improvement in 2026 important to building momentum.
The conference call following Target’s release of its third-quarter results included an outline by Fiddelke (pictured above) of the company’s plans, including a change of direction from that pursued by outgoing chief executive Brian Cornell. The plans include putting more emphasis on larger-format stores, design leadership in the product assortment and establishing clearer differentiation from rival retailers.
The reemphasis on large-format Target stores comes after the company’s push to open smaller, limited-assortment operations in densely populated urban areas, designed to satisfy immediate shopping needs and serve as delivery hubs.
In a general sense, Fiddelke said on the conference call, the changes are designed to better position Target for sustainable and profitable growth after a third quarter that produced results in line with the company’s expectations but disappointing, the company admitted, about its effort to get back on a growth track.
Fiddelke, who officially took the Target CEO post on February 1, enumerated three “distinct but highly interrelated priorities” for the company.
“First,” he said, “we must solidify our design-led merchandising authority, leading with incredible product in a way that is distinctly Target. Second, as a retailer that believes that the shopping experience is every bit as important as the products we sell, we need to offer a more consistently elevated experience across our stores and digital platforms. And third, we need to more fully use technology to improve our speed, guest experience and efficiency throughout the business.”
The three priorities will guide Target’s business decisions, Fiddelke said, and were, in effect, already part of the company’s endeavors in the weeks leading up to the third-quarter financial announcement.
Fiddelke addressed a restructuring of Target’s headquarters in the conference call. This includes eliminating some 1,800 positions, about 8% of the homebase workforce. He called the move “a difficult but necessary step forward,” adding, “I want to make it clear that this move wasn’t about cutting costs. Instead, by removing layers that have added complexity to the way we work, we’re aiming to work with greater agility, making it clear who owns decisions and empowering our team to operate with greater authority and speed in support of our strategy.”
When Cornell became CEO, he also addressed what observers identified as an overly dense corporate structure and refined operational elements, particularly as regards food and everyday essentials, which had been continually expanded under the previous regime, making store operations more complicated and costly. Target had, after experimenting but cooling on the SuperTarget format, added what was, in effect, a full grocery store operation to its discount stores, including expanded grocery and perishables components.
Although it offered shoppers more options in their store visits, Target had to deal with costs associated with maintaining the shelves, always a tricky proposition in food retailing, in which constant restocking and refacing, as well as exacting cold chain maintenance and inevitable shrinkage prevail. Cornell scaled the food and consumables part of the operation enough to allow Target to refocus on the company’s core general merchandise operations, even as he streamlined headquarters operations and closed the company’s operation in Canada.
The moves improved Target’s results. However, the fiscal advance coincided with the post-COVID inflationary period, when shoppers spent less on discretionary general merchandise and more on food and necessities. At the same time, fast-fashion brands, offpricers and warehouse club operators were growing and providing greater competition for Target’s core business. All the while, Amazon continued to gain prominence with shoppers across product categories important to Target.
Target found itself in difficult straits. Even during periods of growth, the company couldn’t sustain the gains it had achieved up to the pandemic, except in the early 2010s, until Cornell’s arrival in August 2014.
With a new set of challenges to confront, Fiddelke says Target already has been taking pains to deliver on the new priorities, including “solidifying our merchandising authority and elevating our shopping experience. And you’ll also see the critical role that enhanced technology plays in supporting both, helping us progress quickly, efficiently, and in industry-leading ways.
“We are a design-led company,” he continued, “and that starts with our authority in merchandising: our ability to build a unique assortment of the right, stylish, on-trend products at incredible value that’s so central to who we are and key to our differentiation and future growth.”
Target reported it is enhancing that merchandising authority in the hardlines business through an initiative dubbed “Fun 101,” developed to bring greater cultural relevance, style authority, and trend-right positioning to the assortment, Fiddelke said. The initiative emphasizes newness and innovation.
In an earlier conference call, Rick Gomez, Target executive vice president and chief commercial officer, identified the company’s SharkNinja small appliance offering as one of the product lines instrumental in bringing “Fun 101” to consumers. Fiddelke said early results delivered by the “Fun 10” initiative have reinforced Target’s confidence that it will advance the company’s hardlines merchandising agenda.
In the third-quarter conference call, Gomez described “Fun 101” as a “year-round celebration of culture, trend and style, served up in an only-at-Target way.”
“Fun 101” provided a boost in the third quarter, Gomez noted, “led by a nearly 10% comp in toys and double-digit growth in music, video games and our expanded selection of sporting equipment, all categories where we’ve invested in unique-to-Target assortments that are clearly resonating.”
Gomez said that Target will take what it has learned from “Fun 101” and other initiatives, including its expansive launch of “Stranger Things” merchandise concurrent with the finale of that streaming franchise, to help it transform the experience consumers have as they shop. The company’s recent announcement that it will place greater focus on and expand its assortment of wellness products is another initiative to better align with lifestyle trends that have become more prominent in the market.
Target promotes “Stranger Things” with Otherland candles.
AI Application
From an operational perspective, it’s hard to identify a consideration more prominent in the retail sector than artificial intelligence. Fiddelke pointed out that Target has introduced new AI tools that give employees access to advanced data, ranging from what’s trending on social media to which products and styles are attracting consumer attention at Target or across the retail and consumer products sectors. The tools can also provide early reads on future trends that target customers are most likely to care about so that staffers can forecast needs, anticipate trends, and buy smarter and faster, he explained.
Target Trend Brain, for one, is a new internal creative platform that uses GenAI to help staff identify and respond to emerging developments faster and predict future trends. It leverages AI capabilities to get a sense of color, material, style and product details that will be important to shoppers, then it applies consumer research and brand principles to get unique and on-trend products in front of consumers quickly.
In its push to increase speed to market, Target also has created synthetic audiences, AI-driven models that simulate real consumer populations to help the company understand how different groups might respond to products and marketing campaigns before they launch, Fiddelke said. The synth audiences give Target marketing and design staff a chance to test, learn and refine products, promotions and messaging with speed and efficiency.
To make the most of AI, Target has assembled a merchant roundtable to redefine roles through a cross-functional team approach, bolstering assortment planning and buying decisions. The goal is to better equip Target teams to make bolder decisions faster, Fiddelke said. As part of the push, he asserted that Target is augmenting its leadership in the home business to accelerate change in what the company regards as a signature category.
Enhanced in-store digital tools currently in use at Target are reducing time spent on backroom tasks through more efficient truck unloading and stocking, he added, allowing more time for additional worker/guest interactions. Fiddelke said Target tech enhancements, process improvements and establishment of clearer measurements have produced positive results. The work Target has done contributed to more consistent on-shelf availability of the company’s 5,000 top items, which are the most important to customers and represent 30% of unit sales. The top 5,000 enjoyed a 150-basis-point year-over-year improvement in unit sales, and Fiddelke said Target is looking for more as it accelerates its efforts.
The Shelves
Observers have identified out-of-stocks as a problem plaguing Target, especially in its urban stores. Fiddelke said Target has made progress, but more work is needed to improve the customer experience and get Target back on a growth track. Target’s progress with its top 5,000 items is an important start, Fiddelke said, adding improvement across the store operation is imperative.
When it comes to applying tech to support customers, Fiddelke highlighted Target’s holiday launch of a GenAI-powered Gift Finder on the company’s website and app, which addressed guest questions to help consumers refine their gift shopping and ease decision-making. Consumers can ask the Gift Finder anything from as generic as “What is a good present for my mother-in-law?” to something more specific, such as “I have a five-year-old son who loves dinosaurs, what gifts are available for under $20?” The Gift Finder can provide recommendations or ask clarifying questions to quickly and easily assist guests.
To give customers additional shopping options, Target is working with major GenAI platforms through an initiative the company is calling “Conversational Curation.” The initiative builds on apps for the ChatGPT application previewed in early October that let customers shop by conversation, with consumers asking how to solve a shopping challenge and receiving recommendations. Through the partnership with ChatGPT developer OpenAI, Target customers will be able to purchase multiple items in a single transaction supported by artificial intelligence, Fiddelke said.
Target Gift Finder
Chicago Test
Target’s in-store experience improvements are being tested in a Chicago pilot. In Chicago, Fiddelke said, Target had demonstrated the effectiveness of new operating models governing the local mix of in-store and digital fulfillment, designed to enhance the shopper experience and improve operational performance. The company is reducing the fulfillment mix in high-traffic stores, allowing employees to spend more time interacting with in-store guests. Lower-volume stores in the same market, with back rooms suited to shipping product, will handle more digital fulfillment volume, with labor skewed toward the function.
In that way, Fiddelke said, Target is refining economies of scale as it optimizes workloads, with the resulting benefits applicable across the store portfolio. The company is applying learnings from the Chicago pilot to 35 additional markets as it seeks to improve fulfillment while sustaining in-store service.
Overall, Fiddelke observed that Target’s changes have increased delivery speed for consumers and reduced average fulfillment costs. As the company’s e-commerce initiatives advanced, same-day delivery enabled through its Target Circle 360 loyalty program drove a sales increase of more than 35% in the third quarter. Today, more than half of U.S. markets are eligible for Target next-day delivery and around 99% of the country’s population can opt for two-day shipping.
As the company moves into 2026, investment in new stores, store remodels, and chain-wide category changes will take into account that Target’s larger-format stores are outpacing initial sales expectations and remain a strong source of growth, Fiddelke said. Given the current real estate opportunities, Target intends to continue opening bigger boxes in more markets. Given Target’s emphasis on store-based fulfillment, new stores not only serve consumers directly in the markets where they operate but also advance the company’s ongoing effort to strengthen its fulfillment capabilities across the U.S.
Target is increasing its capital expenditure plans for the next fiscal year, expecting to spend about $5 billion, $1 billion more than it did in fiscal 2025, across new and existing markets. Although new stores will be a point of emphasis, so will advancing the retailer’s store remodel program. Remodels offer a singular opportunity to enhance the experience customers have when shopping at a store they already visit, Fiddelke observed.
It doesn’t end there. Target is also investing in online consumer engagement, particularly through the Target app, focusing on creating a more satisfying virtual experience by emphasizing personalization. Target is applying data it has been assembling, including through its loyalty program, to guide its personalization efforts in a way that makes for precision and greater impact.
There’s no question that this is a period of transformation for Target. The environment around us continues to evolve, whether it’s shifting consumer demand, changing competitor dynamics or broader macroeconomic pressures. But let me be clear, we are not waiting for conditions to improve. We are driving the change ourselves right now. We are taking bold, decisive steps to reshape how we work and reignite growth with urgency, focus and confidence in who we are and who we can be.
– Michael Fiddelke, Target CEO
Moving Forward
In assessing the third quarter, Morgan Stanley analyst Simeon Gutman noted Target comps in the period were subject to ongoing challenges in apparel, accessories and home furnishings and décor, which signaled that regaining design/style merchandising authority has been an uphill effort for the retailer. However, Gutman said he is encouraged by Target’s planned increase in capital investments in 2026 and what he described as an early lead in agentic commerce, including its internal initiatives and partnership with OpenAI.
Fiddelke said Target enjoys success when it puts great products in front of shoppers, is design-led and differentiated, and provides a satisfying customer experience. That part of the formula hasn’t changed, he said. What’s required is execution that aligns with how and what consumers want to shop for today.
“There’s no question that this is a period of transformation for Target,” Fiddelke said. “The environment around us continues to evolve, whether it’s shifting consumer demand, changing competitor dynamics or broader macroeconomic pressures. But let me be clear, we are not waiting for conditions to improve. We are driving the change ourselves right now. We are taking bold, decisive steps to reshape how we work and reignite growth with urgency, focus and confidence in who we are and who we can be.
We know what makes Target special, an unmatched merchandising authority and the ability to create joy through an elevated and inspiring guest experience, all enabled by the power of technology to amplify both speed and connection across every part of our business,” he continued. “These are more than ideas on a page. They are the pillars of our strategy, shaping every decision we make, and they are coming to life right now across the company.”
In a research note, Morningstar analyst Brett Husslein commented that Target’s 2.7% third-quarter comp sales decline and adjusted EPS of $1.78, down 4%, reflected ongoing softness in discretionary categories and lower store-originated sales, off by 3.8%, that were only partially offset by a 2.4% overall growth in e-commerce sales. He noted the quarter reinforced the idea that Target’s path to recovery remains investment-heavy and dependent on effective execution.
As noted, management has increased capital expenditures to fund remodels and digital fulfillment at a higher-than-anticipated level, with a billion-dollar increase in 2025 spending. Husslein pointed out Target’s relatively high reliance on discretionary demand, which constrained traffic trends and is likely to persist in the near term, prompting increased promotions to lift volumes. Despite near-term headwinds, he observed that Target’s focus on elevating its assortment and upgrading the shopping experience can support a return to low-single-digit sales growth over the long term.
Husslein stressed that, alongside operational efficiencies, execution is key, as the company lacks the structural advantages that would provide a competitive moat sufficient to ward off rivals, emphasizing price leadership and convenience.
