Target’s Digital Boost Doesn’t Prop In-Store Slump

Target’s first quarter earnings reported May 18 were a mixed bag.

While Target beat analysts’ expectations, and digital continued to grow, there was one glaring reality out of Target’s earnings results that show the ongoing struggle that physical retailers have of getting consumers into their stores.

Overall, on the digital side, Target did see an increase of 23 percent in online sales, down from the 38 percent digital growth seen one year ago. Target’s Q1 comparable sales increased 1.2 percent, but overall sales saw a 5.4 percent decrease to $16.2 billion — down from $17.1 billion seen during 2015’s Q1.

This is further proof that the rapid double-digit increase in the relatively small base of digital sales isn’t enough to blunt the impact of seemingly smaller percentage decreases in in-store sales on a much larger in-store sales base – a big reason why traditional retail must think differently about making up the sales shortfall.

The Street agrees. Target’s sales growth/decline mismatch caused Target’s stock to drop 7.3 percent in pre-market trading today. The stock is currently trading at $67.33, down $6.28 from the close yesterday.

CEO Brian Cornell warned that things don’t look much better as Target expects its comparable sales for next quarter to be flat, down to 2 percent.

But despite these headwinds many major retailers are facing, Cornell expressed optimism in his prepared earnings remarks.

“We are pleased with our first quarter financial results, which demonstrate the effectiveness of our strategy in an increasingly volatile consumer environment,” Cornell wrote.

During the call with analysts Wednesday morning, Cornell highlighted that there has been an increase in traffic and the average ticket, but notes that sales for the quarter were lighter than expected.

The mixed bag for Target – and all physical retailers – is that consumers still go to physical stores, but and when they go, they are directed and committed buyers who spend more. However, there are fewer of those trips occurring. For Target, the number of transactions were up slightly (.3 percent) and the average transaction amount was also only up slightly (.9 percent), but units per transaction fell 2 percent.

He cited the “increasingly volatile consumer environment,” saying that Target’s quarterly results looking ahead “has been tempered by the recent slowdown in consumer trends.”

And, of course, the move to digital which is a less profitable channel, even though it is the one that consumers prefer to use.