To cut expenses, Target likely will trim supply costs -- and staff

A day after Target announced that it would lay off several thousand workers, company officials provided no information about when or where the cuts might fall.

But in a meeting Wednesday with Wall Street analysts, Target CFO John Mulligan said the company will try to make one-fourth of $2 billion in expense reductions from suppliers in the form of lower costs of goods. The remaining reductions, he said, will come from selling, general and administrative spending, which typically refers to staff.

For example, Mulligan said, the company will aim to communicate more directly with customers. That could mean less spending — and fewer people — devoted to traditional, less precise, marketing approaches.

"You'll see us, as we communicate with the guest, moving from broad channels, like our Sunday circular, to very focused channels, like e-mail, social," he said. "Ways we can communicate very directly to the guest."

Mulligan also said the company needs to combine separate information systems — one for stores and a separate one for its much smaller online business.

"Right now, we're in the middle of combining two inventory systems and the order management system," he said. "Several of the large systems that underpin a retailer have to be combined in the background."

Mulligan also said Target will be hiring amid the layoffs, to beef up its data management and information technology departments. After 50 years of building additional stores to fuel the company's growth, Target will now rely on information technology to do the same.

"There's always the next guest-facing thing, the next capability that we're going to need to build, because that's where the guest is going," he said. "And IT becomes the engine that helps us drive that."

Online sales currently account for about 2.5 to 3 percent of Target's revenue, according to the company.

Target officials say the $2 billion in cuts will help make Target more efficient and help it invest in initiatives that boost sales and profits. That should mean greater rewards for investors, they say.

Company officials have said the restructuring, which will primarily hit positions at its headquarters, is in its early stages and that will take time.

Spokeswoman Molly Snyder said it would not be fair or responsible to prematurely say how many people may lose their jobs.

Paula Rosenblum, an analyst with Retail Systems Research, said Target executives have been vague about where the cuts will come from.

"It's hard to see whether the cuts are coming from bone or fat," she said.

Many retail companies have been cutting costs and removing layers of middle management, in particular, because in these more technology-driven times, those types of roles are not required anymore. But Target has fallen behind other retailers in trying to cut costs and run leaner, retail consultant Carol Spieckerman said.

She expects Target's cuts may be concentrated in marketing and merchandising.

"All the layered structures of buyers and divisional merchandise managers and general merchandise managers and on up are no longer necessary to execute business at scale from a multi-channel perspective," Spieckerman said.