• by Sarah Mahoney  @mahoney_sarah, March 26, 2020

Target says its sales are up sharply, as frantic Americans try and prepare for weeks of sheltering in place, with sales so far trending 20% above last year.

But the COVID-19 virus has also sent the retailer in new strategic directions: Besides canceling more than half of the store remodeling it had planned for this year, it bumped its associates’ salaries up by $2 an hour through May 2.

Saying the changes are required to “support the team and minimize potential disruptions in their work to serve the needs of American consumers,” the Minneapolis-based retailer is also scaling back its expansion of a fleet of tiny Targets. It now expects to complete fewer than 20 of these stores, not the 36 it had previously promised.

“We are prioritizing the work that’s in front of us to support our team, store operations and supply chain as families across the country rely on Target for everything they need in this challenging environment,” says Brian Cornell, chairman and CEO, Target, in its announcement.

It’s also delaying efforts to add fresh grocery and adult beverages into its Drive Up and Order Pickup services.

Target says many of these steps are to protect store employees. It’s adding a new option for those who are 65 or older, pregnant, or who have underlying medical conditions to protect themselves by taking paid leave. And for the first time, it’s offering bonuses for the 20,000 hourly store team leaders that manage individual departments.

The retailer says that for the first three weeks of the quarter, sales trended as it had forecast. But beginning the third week in February, as pandemic fears became more pronounced, Americans went on a massive Target run. For the full month of February, sales rose 3.8% and began surging in mid-March. Overall, sales so far in March are 20% higher than in the comparable period last year, and in essentials, food and beverage, they’ve climbed 50%.

Sales within the home office and entertainment category are also up, while purchases of clothing and accessories have dropped more than 20%.

But as sales in more profitable high-end purchases soften and investments in payroll pick up, the company is warning investors that its margins will feel some pressure. Costs, including pay, benefits and the impact of more aggressive cleaning routiness will add $300 million to incremental costs for the quarter. As a result, it’s withdrawn its guidance for results, as have many other companies,

Target continues to have one of the best positions in the retail industry, “with a strong liquidity position, valuable exposure to key needs-based categories, and highly effective omnichannel fulfillment capabilities,” writes Peter Benedict, an analyst who follows the company for Baird, which continues to rate the company as one that will outperform competitors. “Target’s relative traction with consumers should continue to stand out as this unprecedented economic shock unfolds.”