Target Corp.’s string of quarters with solid online sales growth continued in the fiscal second quarter of 2017.
Target, No. 20 in the Internet Retailer 2017 Top 500, reported that online accounted for 4.3% of overall sales during the second quarter ended July 29. The retailer reported $706.4 million in online revenue, up 32.4% $533.6 million during the same time last year, when online accounted for 3.3% of overall sales.
For the first six months of fiscal 2017, Target also reported online accounted for 4.3% of overall sales, or $1.395 billion, up 26.8% from $1.100 billion during the same time last year, when online accounted for 3.4% of total sales.
Chief operating officer John Mulligan told analysts on the retail chain’s Q2 earnings call Wednesday that more online shoppers are choosing to pick up their orders in-store.
“Through the first half of the year, store pickup volume has grown more than 30% above last year, and in July we saw more than 40% growth [over last year],” he said, according to a transcript from Seeking Alpha. “As more and more of our guests respond to the convenience of order pickup, we are investing in system enhancements and store labor hours to continue to elevate the guest experience. These investments will be especially important in the fourth quarter holiday season when guests are particularly time pressured and rely on this fulfillment option even more frequently.”
Online orders shipped from stores nearly doubled year-over-year and have through the first six months of 2017 accounted for more than 40% of all online orders, Mulligan said. Target plans to expand the number of stores that ship online orders to 1,400 from just over 1,000 currently.
Earlier this week, Target beefed up its fast delivery capabilities by acquiring same-day delivery software firm Grand Junction for an undisclosed price. Mulligan told analysts that the company has been testing out Grand Junction to fulfill same-day orders at a store in New York City’s Tribeca neighborhood and is seeing some promising results early on.
“The value of the average basket for these same-day delivery orders is more than 6x the store average at the Tribeca store and contain nearly 4x the units compared with the stores typical basket,” he said. “Importantly, net promoter scores for the same day delivery service have been higher than for the Tribeca store overall demonstrating the quality of execution so far. Based on these encouraging initial results, we plan to expand the same day delivery test to several other New York City locations in the fall.” A net promoter score is a ranking of how likely a shopper will recommend the company to another consumer.
Grand Junction isn’t the only expedited fulfillment option in which Target is investing.
Target in June began testing a program called Target Restock in its hometown of Minneapolis. Shoppers who have a Target REDcard credit card are able to choose from more than 15,000 household products online and have their order delivered the next day from a nearby Target store for a $4.99 delivery fee. Orders must be placed by 2 p.m. local time during the week for the shopper to receive next-day delivery.
Mulligan didn’t say what percentage of shoppers in the Minneapolis market are using the service, however he did tell analysts that Target has since rolled out Target Restock in Dallas and Denver with plans to launch in seven markets (still unnamed) in time for the holiday shopping season.
Several changes will occur when Target Restock expands to other markets. For instance, Target will add a Saturday delivery to the program. The retailer also wants to push the ordering deadline for next-day delivery to later than 2 p.m.
“Given the strong store execution we have seen so far, we will begin ramping up communication and marketing efforts in Restock markets, which will increase awareness in order volume providing visibility into the capacity of our store team to reliably process higher order volumes,” Mulligan said. “Beyond our internal fulfillment capabilities, our team is also working with transportation partners to improve the speed and cost efficiency of last-mile delivery.”
“While the management team hasn’t answered all of our concerns addressing what we perceive to be ‘structural challenges,’ the company is making strides on this front as evidenced by its: (a) decision to accelerate store remodels; (b) leadership changes in grocery; and (c) digital enhancements (i.e. testing same day delivery, acquisition of Grand Junction, etc.),” wrote Gordon Haskett Research Advisors analysts Charles Grom, John Parke, and Andrew Minora.
- Net sales of $16.429 billion, up 1.6% from $16.169 billion during the same time last year.
- A year-over-year comparable sales gain of 1.3%, compared with a 1.1% decline.
- Net earnings of $672 million, down 1.2% from $680 million.
For the first six months of 2017, Target reported:
- Net sales of $32.446 billion, up 0.3% from $32.364 billion last year.
- Comparable sales were flat, as they were during the same period last year.
- Net earnings of $1.353 billion, up 3.1% from $1.312 billion.