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Target’s Digitally Focused Model Sparks Sales Growth

Both Target and Walmart’s earnings results showed the retail giants are focused on driving up sales by focusing on digital, but, as the past few quarters have shown, one retailer seems to better at threading the digital needle.

After all, their Q2 metrics show it all.

Walmart’s comparable store sales increased 1.3 percent, with net sales up 4.8 percent to $74 billion. On the digital side, eCommerce sales globally increased 16 percent.

And then there’s Target. While the retailer’s sales growth was slightly higher, increasing 2.8 percent to $17.4 billion, the digital channel growth was 30 percent in terms of sales growth, year over year. And in comparable sales, Target’s signature categories (Style, Baby, Kids and Wellness) grew three times faster than average. Target’s positive earnings report has also been attributed to Target CEO Brian Cornell’s focus on trimming costs, which will continue over the next two years with plans to cut another $2 billion. This year, Target’s plans call for shedding around $500 million from its budget.

Moving forward, Target’s omnichannel focus will continue as the retailer looks to build upon its ship-from-stores initiative that has helped create a better organizational structure flow in how Target can get goods to consumers quicker than ever before. Cornell also spent some time on the earnings call with analysts speaking about plans to build out that initiative.

“While we are pleased with the industry-leading growth we’ve seen so far this year, we have much more work to do. And a key asset we will deploy is our stores. We are already shipping digital orders from approximately 140 stores. And by the end of this year, we’ll be shipping from more than 450 locations. Ship-from-store capabilities allows us to balance inventories across the network, leverage the capital and labor already in our stores and reach guests more quickly,” Cornell said. “The highlighted benefits implemented this fall include testing what we’re calling ‘available to promise,’ in which we are offering the guests a specific delivery commitment. Specifically, two or three business days if a guest orders on a specific date. We believe this capability will drive further increases in digital conversion rates — which we are already responding rapidly to as guests respond rapidly to faster and firmer delivery commitments.”

In terms of specific digital tests Target has been undergoing, the one that’s gained the most press lately is its beacon trial that’s happening at 50 stores across Chicago, Denver, Minneapolis, New York City, Pittsburgh, Portland, San Francisco and Seattle.

If all goes according to plans — and if rumors are to be believed — beacons will have gone chain-wide in time for the holiday shopping push. Beacons at Target will be opt-in only and delivered through the Target app. Deals and information will be pulsing out for iOS customers (the Android version remains under development) — though in an effort to head off accusations from push message weary consumers, Target will be capping the number of notifications that stream to smartphones. The beacon tech will also fuel an expansion of the “Target Run” section of the mobile app.

That page also houses deals, product picks, and top-pinned items from Pinterest, but is designed to resemble a social media feed, and more closely mirror that user experience. In the initial run, Target’s beacons will be about powering shopping on the savings end, though the retailer has hinted at greater expectations for the program. In the future, customers might be able to sort their shopping lists while they move through the store — in a way similar to how mapping apps can reroute a traveler when you ignore its initial directions.

Target’s recent management shift has been causing the most buzz during the start of the week after it was announced that Target’s CFO John Mulligan was appointed to COO, which is a newly created position that enables him to oversee stores, properties and supply chain. This move was briefly spoken about during the call as aligning with Target’s plans to create better organizational flow to increase efficiencies, along with helping Target focus on growing its digital footprint by determining how its physical footprint can complement its digital channel growth.

"We’re very pleased with our second quarter financial results, as traffic growth, strong sales in our signature categories and continued expense discipline drove better-than-expected profitability,” Cornell said in the prepared earnings release. “While the momentum in our financial results is encouraging, we have much more to accomplish. Looking ahead, we are focused on making further progress against our strategic priorities and are committed to improving operations as we move through the important back-to-school, back-to-college and holiday seasons.”

Overall, the reaction from analysts has been positive — with most comparing Target’s successful quarter to Walmart, and highlighting where there is room to pivot in the retail ecosystem.

“It’s almost the opposite story [from Walmart]; terrific sales results, earnings came in very strong,” retail analyst Joseph Feldman told CNBC, noting that Cornell has led the company well, saying that’s “being reflected in the numbers.” He also highlighted the importance of omnichannel in Target’s strategy, even if the measurable metric impacts from it are small.

“The omnichannel is really important for retail. You really need to have this fully integrated brick-and-mortar with a digital [presence],” Feldman said.

Target’s earnings came just a day after the terms of the Target breach settlement with Visa have reportedly been settled upon. Target will pay Visa card issuers as much as $67 million as a result of costs stemming from the retail giant’s massive data breach that hit at the end of 2013. The settlement comes after months of negotiations between the retailer, the payments network and the issuers involved in the case.

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