Online sales continue to become a more important factor in Target Corp.’s overall fortunes.
Target, No. 20 in the Internet Retailer 2017 Top 500, reported Wednesday that online accounted for 4.3% of its sales in the fiscal first quarter of 2017, or $688.7 million, up 21.5% from $566.9 million during the same time last year, when online accounted for 3.5% of total sales.
Meanwhile store sales, which account for the bulk of Target’s total sales, declined to $15.328 billion in the period ended April 29, down 1.9% from $15.629 billion in its fiscal Q1 2016.
As consumers shift their buying online and store sales slip, Target has made strides to strengthen the ties between its online and offline operations. The retailer announced last week it will test a next-day delivery service, called Target Restock, in its hometown of Minneapolis, which will allow shoppers who have its credit card to order products online through a special dedicated site and have them delivered by the next business day.
“Target Restock is squarely aimed at taking share back from Amazon. The need for Target Restock to succeed cannot be underestimated,” wrote Matt Sargent, senior vice president of retail at consultancy Magid Associates. Magid’s Retail Pulse study finds that 42% of consumers use Amazon.com Inc.’s $99-a-year Prime loyalty program, and 57% of Target customers use Prime. When breaking down Target customers who are mothers ages 27 to 51, “Prime usage climbs to a staggering 68%,” according to Sargent.
“Target Restock is a great start for Target to regain customers lost to Amazon, but Target may look to expand its efforts within Restock to the category of apparel,” Sargent wrote. “Given the strategic importance of apparel to Target’s focus on style and the significant penetration Prime has established (53% within Target customers versus 45% within rest of market) leveraging Restock to recapture customers using Amazon Prime for apparel is a next logical step for an initiative desperately needed at Target,” he wrote.
Chief operating officer John Mulligan says the retailer has made strides in improving its omnichannel efforts, telling analysts on Target’s Q1 earnings call Wednesday that online orders shipped from a store location accounted for 27% of online orders, or more than double the amount shipped from stores during the same period last year. Overall, stores fulfill more than 40% of Target’s online orders in some capacity.
“This growth was partially driven by approximately 600 ship-from-store locations we’ve added since last year,” he said, according to a transcript from Seeking Alpha. “However, the increase was also driven by additional volume running through stores that had this capability for more than a year. Specifically, for the 460 stores that were shipping directly to guests in the first quarter last year, year-over-year growth in ship-from-store volume was 32% this quarter.”
Mulligan also said Target’s store staff had 95% of online orders picked up in stores were ready for a customer to pick up in under an hour.
A Moody’s analyst seems cautiously optimistic about Target’s efforts so far.
“Target’s Q1 performance, which we would characterize as mixed, though in line with our expectations, with a flattish top line and some margin compression balanced by robust cash flow generation and solid online sales, reinforces our view that its strategic shift will take time, and therefore potential progress is difficult to view through a short-term lens,” Moody’s lead retail analyst Charlie O’Shea wrote.
- Net sales of $16.017 billion, down 1.1% from $16.196 billion last year.
- A comparable sales decline of 1.3%, compared with a gain of 1.2%.
- Net earnings of $681 million, up 7.8% from $632 million.