Five Categories, One Thesis: How Target Is Rebuilding Its Merchandising Identity

The most striking moment at Target’s investor day in Minneapolis on March 3 was not a revenue forecast. It was Mara Sirhal, senior vice president of merchandising for home, offering a blunt account of where the category stands. “Our home business has not delivered to its potential, point-blank,” she said. “The industry grew. Target home underperformed. We lost meaningful share over the last two years, and our authority and style inspiration has weakened. That is on us.”

That kind of language is unusual at investor presentations, where the tendency runs toward the euphemistic. It also signals something about how new CEO Michael Fiddelke, who took the role on February 1, is framing the turnaround. Before Target can tell a growth story, it has to tell an accurate diagnostic one. The company reported full-year fiscal 2025 net sales of $104.8 billion, a 1.7% decline, with comparable sales down 2.6% overall and brick-and-mortar comparable sales falling 3.9%. Customer traffic declined for four consecutive quarters. Fourth-quarter revenue came in at $30.45 billion, down roughly 1.5% year over year, even as adjusted earnings per share of $2.44 beat analyst expectations of $2.16.

Target’s fiscal 2026 guidance calls for approximately 2% net sales growth, with improvement expected in every quarter. CFO Jim Lee told investors the company would increase capital expenditures by 25% to approximately $5 billion, directed toward new stores, remodels, supply chain, and technology. An incremental $1 billion in operating investment will accompany that. Fiddelke described a level of change across stores that has not been seen in a decade. Stock climbed more than 6% on the day of the presentation; Telsey Advisory upgraded Target to outperform with a $145 price target, and several other analysts raised their own targets. First-quarter EPS guidance of $1.30 came in below the prior consensus of approximately $1.89, a reminder that the near-term execution path is not smooth.

The merchandising sessions gave Target’s category leaders an extended platform to lay out specifics. Across all five segments, the underlying diagnosis was consistent: Target drifted toward the generic and needs to re-earn the distinctiveness that built its original reputation, one category at a time.

The Grocery Occasions Target Has Not Converted

Food and beverage is Target’s largest merchandising segment by revenue, generating $24.14 billion in the most recent fiscal year, roughly 23% of total net sales, and growing about 1% year over year. It was a relative bright spot in an otherwise difficult period. The category also functions as the retailer’s primary traffic driver; John Conlin, senior vice president of merchandising for food and beverage, said more than half of guests have food in their basket on any given trip.

The operational gap is conversion depth. Target draws shoppers who run in for a few items but has not consistently converted those trips into full grocery occasions. Conlin framed the goal as making food a reason customers choose to visit Target, not a category they shop incidentally while already there for something else. To close the gap, Target plans to expand fresh food square footage in more than half of stores it remodels, with fresh footage doubling in those locations. The company will also accelerate newness in key dry and snack categories by up to 50%, leaning on seasonal items, private brands, and discovery-oriented additions where competitors like Walmart, Amazon, and fast-expanding discounters have not already claimed the ground.

Conlin named in-stock execution as the binding constraint on the plan. A new distribution facility in Colorado is part of Target’s owned supply chain build-out, and he was direct that expanded assortment produces no benefit if shelves are not consistently filled.

Beauty After Ulta

In August, Target’s shop-in-shop partnership with Ulta Beauty, which brought Ulta’s branded format to nearly a third of Target’s approximately 2,000 stores, will conclude. Both companies described the decision as mutual. What Target replaces it with will test whether the partnership built lasting shopper behavior or whether those guests were primarily loyal to Ulta’s brand rather than the in-store format.

This fall, Target will open a proprietary format called Beauty Studio in more than 600 stores and online, designed with elevated fixtures, enhanced lighting, and dedicated service. Amanda Nusz, senior vice president of merchandising for essentials and beauty, said the assortment will include more than 80 prestige and emerging brands, 60 of which are new to Target. She declined to disclose which national brands will carry over from the Ulta arrangement or which competitors’ exclusives Target has secured.

Beauty accounted for roughly 13% of overall net sales in fiscal 2025, with segment sales roughly flat year over year. It was the top growth category for Target’s Drive Up curbside service and in-store pickup during Q4. Beyond the Beauty Studio rollout, Target plans to expand national brand distribution, increase investment in Korean beauty assortments, and grow its men’s grooming and fragrance offering, which Nusz identified as an underpenetrated area with younger shoppers.

Home: The Deepest Deficit

Home furnishings and decor posted a nearly 7% year-over-year sales decline in fiscal 2025, reaching $15.61 billion, the steepest drop across all of Target’s major merchandise segments. The competitive field has widened considerably. Wayfair, which returned to top-line growth in the third quarter of 2025 and launched a generative AI-powered discovery tool that generates photorealistic room scenes from text prompts, has continued investing in the digital browsing and inspiration experience where much home decor consideration now begins. Off-price channels including TJX’s HomeGoods hold a steady position with value-conscious shoppers. Warehouse formats like Costco and specialty players like Crate & Barrel serve different ends of the price and quality spectrum.

Sirhal, who stepped into the home SVP role roughly three months before investor day, said the core failure was a loss of clear aesthetic conviction. Assortment decisions drifted toward the broadly acceptable. She also pointed to macroeconomic pressure: elevated mortgage rates and higher home prices have suppressed buying activity and with it the decorating occasions that typically follow a move or renovation. Mordor Intelligence’s U.S. home decor analysis, published in January 2026, noted that rising rates have constrained home sales turnover and deferred full furnishing projects, shifting consumer spending toward targeted room refreshes rather than comprehensive overhauls.

Target’s recovery plan is explicitly phased. Starting in June, roughly 75% of the decorative home assortment, including candleholders, throw pillows, and greenery, will be replaced. By fall, three-quarters of the bedding assortment is scheduled for reinvention, with kitchen and dining following in 2027. Sirhal is also shifting the channel strategy: Target Plus, the company’s third-party marketplace, will carry large home items like rugs, mattresses, and furniture better suited to direct ship than to store shelf space, allowing Target to add depth in the category without taking on inventory risk for oversized goods.

Compressing the Apparel Timeline

Apparel and accessories, at $15.74 billion in fiscal 2025, declined approximately 5% year over year. Gena Fox, senior vice president of apparel and accessories, identified the category’s central failure as a timing problem: Target was planning assortments six to twelve months ahead of when consumers expected to see them on shelves. Trend-relevant items arrived late. Basics carried disproportionate weight.

The primary new instrument for addressing this is Target Trend Brain, a generative AI platform that analyzes social media signals, cultural moments, color patterns, and material trends to surface emerging styles earlier in the development cycle. As Retail Dive reported in October 2025, Target had deployed more than 10,000 new AI licenses across the company since its Q1 earnings call, with Trend Brain positioned as a central tool for merchandising ideation. A Nasdaq.com analysis of the platform noted it also includes a synthetic audience engine that simulates guest reactions to new designs before launch. Early results from the Fun101 category, where similar AI-informed curation was applied, included nearly 10% growth in toys and double-digit gains in video games and sporting equipment in Q3 of fiscal 2025.

Fox said Target has compressed its apparel production timeline by approximately 40%, shifting toward real-time reaction from advance planning. The 2025 denim overhaul, focused on quality and style upgrades, produced a 10% year-over-year sales lift in that subcategory. T-shirts and tanks are next; Fox said refreshed versions are already reaching shelves. National brand distribution is expanding as well: Levi’s is moving into more than 1,000 stores, roughly half the chain. An exclusive line with country artist Megan Moroney, timed to her upcoming tour, extends the approach Target is using to build calendar-driven traffic into the apparel assortment.

Fun101 and the Case Against Commodity Electronics

Target reorganized its traditional hardlines department under the name Fun101 in late 2024, building the category around four areas: play (toys, plush, established brands like Lego), pop (culturally tied limited editions and licensed collections), sport (licensed team gear and activity-adjacent products), and gadget (trend-forward takes on phone cases, headphones, and similar items). The company deliberately reduced its footprint in televisions and laptops, categories where differentiation on anything other than price is difficult in a big-box format. Fun101 generated $15.8 billion in fiscal 2025, roughly 15% of total net sales, and was approximately flat year over year.

Cassandra Jones, senior vice president of merchandising for Fun101, described the second half of 2026 as the category’s next visible commitment, with plans for dedicated in-store fan shops carrying licensed sports gear, expanded trading card inventory, and a collectibles zone. Limited-edition cultural partnerships, including collections tied to the Netflix series “Stranger Things” and the 30th anniversary of “Space Jam,” are central to that approach: the partnerships are time-limited by design, which gives shoppers a reason to act on a store visit that a permanent endcap does not.

The Open Positions in Target’s Reinvented Assortment

The food and beverage strategy creates a specific opening for CPG brands. The planned increase of up to 50% in new items across snack and dry grocery categories represents assortment space that must be filled. Brands with differentiated products and limited distribution elsewhere are better positioned for those conversations than brands competing primarily on established shelf presence.

In beauty, the post-Ulta environment is genuinely open in ways it has not been for several years. The Beauty Studio’s 80-plus brand roster, with 60 slots going to names new to the retailer, is a significant expansion of available positions. Brands that have historically relied on Ulta’s infrastructure to reach Target’s shoppers will need to engage Target’s own buying teams more directly starting this fall.

The home category reset and Target Plus expansion into rugs, mattresses, and furniture change the commercial equation for brands in those segments. Target is adding items without owning the inventory, which alters how brands supply the channel and how retail media investment connects to sales performance. Target’s Roundel business generated $915 million in direct advertising revenue in fiscal 2025, according to Adweek’s reporting on Target’s earnings release, with fourth-quarter ad revenue of $295 million representing a 55.3% increase over the prior-year period. As assortment turns over significantly across multiple categories and Target Plus expands its home footprint, the Roundel investment decisions brands make in the next two quarters will be priced against a shelf configuration that looks meaningfully different from what existed twelve months ago.

Fiddelke told CNBC on investor day that February 2026 sales turned positive year over year, a development he described as giving him confidence while noting that a single month does not establish a trend. The full-year plan requires consistent execution across all five category reinventions in parallel, against a consumer environment where discretionary spending remains under pressure and where the macroeconomic factors that weighed on home sales throughout 2025 have not materially shifted. Target plans to open more than 30 new stores in fiscal 2026, with its 2,000th location opening later this month in Fuquay-Varina, North Carolina, a pace of expansion that reflects confidence in the physical store format even as the company works to improve what those stores carry.

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