What Kohl’s And Target’s Earnings Teach Us About Physical Retail’s Road To Recovery

While a wild and white-knuckled ride all the way through, the year 2020 wasn’t necessarily a bad time for everyone. In fact, as Target reported its earnings this week, the words it had for the pandemic year were “record-breaking.” All in, Target said it grew more in 2020 alone than all of its cumulative growth since 2009.

“Following years of investment to build a durable, scalable and sustainable business model, we saw record growth in 2020, as our guests turned to Target to safely provide for their families throughout the pandemic,” said Target Chairman and CEO Brian Cornell. “With the strength of our unique, multi-category assortment and the flexibility we offer through our reliable and convenient fulfillment options, we gained nearly $9 billion in market share in 2020 and grew our revenue by $15 billion, which is more than the 11 prior years combined.”

Building on that momentum, Target has vowed to invest $4 billion annually over the next several years on store renovations, technology enhancement and order fulfillment services to further grow the business.

According to Target’s CEO — the retailers’ success in 2020 is attributable to its success in transforming its store locations into omnichannel hub spots. Over 95 percent of Target’s Q4 orders, Cornell noted, were fulfilled in stores.

“We did two things at once [in 2020]. We placed the physical store more firmly at the center of our omnichannel platform, and we created a durable, sustainable and scalable business model that puts Target on a road of our own,” Cornell told analysts.

A road that, given its latest round of results, will include a lot of upgrades to digital ordering for curbside fulfillment. Digital sales accounted for two-thirds of the retailer’s overall growth in 2020, and the plan now is to expand fresh food and adult beverage pick up to 800 more stores over the course of the next few months.

“There’s more we can do for our guests,” Target Chief Financial Officer and Executive Vice President Michael Fiddelke said on the call. “One way is to continue expanding the assortment of fresh, refrigerated and frozen food items available for pick up and drive up.”

He explained that customers who try grocery pick up or drive up for the first time began shopping at Target more frequently, an average increase of one visit per month, compared to those who did not try out these services. Additionally, those who tried out pick up or drive up increased their grocery spending by 20 percent to 30 percent compared to those who did not, and their spending in other, non-grocery categories by about 20 percent.

Kohl’s did not quite have the blockbuster earnings run that Target did when it also reported earnings earlier this week — with a fall-off in Q4 sales of 10.1 percent.

But even in that rough result, there was yet another edge of a digital silver lining — as Kohl’s Q4 hit was leveled out by a 21 percent pick-up in its digital operations. An increase that the retailer expected to ride to a strong 2021 performance of a full-year net sale pick up in the “mid-teens percentage range as compared to 2020.”

“Our organization has continued to navigate through the pandemic successfully. Our business is gaining momentum and our strong cash-generating model has proven resilient,” Kohl’s Chief Executive Officer Michelle Gass noted on a call with analysts.“Kohl’s is uniquely positioned to differentiate itself and address the active lifestyle needs of today’s families.”

A major part of that differentiation that got a special call-out in Kohl’s earnings presentation is its ongoing and deepening relationship with Amazon. In the analyst call, Gass offered up a special shout-out to the roughly 2 million new customers the department store added last year, thanks to its Amazon pair-up. And while she had no new details of the arrangement, noting that they are “confidential,” she did affirm the relationship remains “accretive to both sales and profit,”

Kohl’s has been accepting Amazon returns since 2017; starting in 2019, the Amazon returns kiosks have been available nationwide at Kohl’s locations (among other places). Moreover, Gass, like Target’s O’Connell, was upbeat on the digital additions like curbside delivery they’ve made thus far — and their ability to bring those shoppers back into the store when the pandemic period has passed. Gass referred to curbside pick up as — “the fast-food version of apparel,” and its latest buy online, pick up in-store (BOPIS) enhancements as an opportunity to both reach those customers and potentials convert them into in-store shoppers in the future.

“People are going to want to go back to shopping. It’s entertainment, and they’ll need things to travel and go back to work, and we’re well-positioned for that,” Gass says.

That consumers will eventually go back to in-store shopping seems certain, though it remains a mystery when exactly that day will arrive. But it is telling that how much digital carried the performances of players like Target and Kohl’s — and how much of their immediate and future investments will be in bolstering those digital capabilities. Neither has quite the field on capital improvements to their physical stores, but even those upgrades, it seems, will be geared toward reaching and delighting the emerging cohort of omnichannel shoppers.

According to PYMNTS’ Global Digital Shopping Index, interest in curbside pick up “has grown significantly, with 15.5 percent of those who purchase digitally citing it as their preferred way of shopping in July — up from 10.8 percent in the early pandemic days of March 2020. And given both Kohl’s and Target’s latest earnings run, interest in curbside has only grown since then.