Retail

Target Out-Walmarts Walmart With Digital 3.0 Blowout

Target store

The mega-retail blowout continued this week, as Target posted record Q2 earnings Wednesday (Aug. 19) with evidence that the digital shift is moving from pandemic phenomenon to a consistent reality.

By the numbers, Target out-Walmarted Walmart. Its comp store sales grew 24.3 percent, a record for the company. The eCommerce numbers were astounding. Digital comparable sales grew 195 percent over 2019, accounting for 13.4 percent of the chain’s overall sales growth. Same-day services (order pickup and the company’s Shipt delivery service) grew 273 percent. CEO Brian Cornell’s innovation of using stores as eCommerce fulfillment centers paid off in spades as they fulfilled 90 percent of all digital orders. Target has added 10 million new digital customers since Jan. 1, according to the company.

“Our stores were the key to this unprecedented growth, with in-store comp sales growing 10.9 percent and stores enabling more than three-quarters of Target’s digital sales, which rose nearly 200 percent. We also generated outstanding profitability in the quarter, even as we made significant investments in pay and benefits for our team,” said Cornell. “We remain steadfast in our focus on investing in a safe and convenient shopping experience for our guests, and their trust has resulted in market share gains of $5 billion in the first six months of the year. With our differentiated merchandising assortment, a comprehensive set of convenient fulfillment options, a strong balance sheet, and our deeply dedicated team, we are well-equipped to navigate the ongoing challenges of the pandemic, and continue to grow profitably in the years ahead.”

On the earnings call the company added some color around the digital customer, especially around the 10 million new ones. Target’s internal analytics show that multi-channel guests spend four times as much as a store-only customer and 10 times as much as digital-only customers. Drive-up customers have increased overall spending by 30 percent. Digital customers have doubled their repeat purchase rate over 2019.

“We continue to see the most valuable and profitable guests to Target are the guests that use all of our channels,” Cornell said on the earnings call. “And we continue to see stickiness as our guests discover drive up, or discover the benefits of Shipt, and also digital guests that are now coming into our stores because of the investments we’ve made, and the trust we’re building. So we’ll continue to report more about those new guests in quarters to come, but certainly we’re very excited about what that means to our future.”

On the not-so-exciting front, the Target executive team was soft on the back-to-school season and Q3 in general. Cornell said the chain will maintain its back-to-school promotions and merchandise for an extended period and will move some in-store shopping events to outdoor venues such as parking lots. Target is also cutting back its Halloween inventory and will promote contactless payments during Q3 to anticipate continued consumer concerns about the virus.

“Obviously we’re all looking at back-to-school [and] back-to-college trends, and each and every day there’s new information,” Cornell said. “And we’ll look for more information. We don’t know if students will be welcomed back into a classroom in September or October. Maybe they wait actually until January. So we’ve made the decision to be flexible, and we’ll extend the season and extend our assortment because we know at some point in time those students will need backpacks and uniforms, and they’re going to need school supplies. So we’re going to make sure that we continue to flex and I think it’s been the hallmark of our performance throughout the first two quarters of this year, our ability to stay agile, stay flexible, meet the needs of the new environment, and we’ll continue to take that approach with back-to-school season.”

Cornell said the company will take a similar approach to the holiday season, which he expects to start in October. “And we certainly expect it’s going to be a different rhythm to the shopping season,” said Cornell.

It’s evident from the Target earnings, color on the subsequent call and the analyst reactions to earnings this week that Digital 3.0 has taken its place as priority number one for brick-and-mortar retail.

“According to Department of Commerce statistics, e-commerce makes up just 16.1% of total U.S. retail spending. But the direction of the trend is obvious,” says Yahoo Finance. “One year ago, e-commerce was 10.8% of U.S. retail. Just a few years ago, retail chains were encouraged to have an online presence as an addition to their physical presence; then over time, the buzzword became an ‘omni-channel’ approach; soon, if it isn’t the case already, a chain’s e-commerce platform is going to be more important than its physical footprint.”

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