2 million of those 5 million first-time Target.com buyers picked up their orders at Target stores. In April, online sales were up 282% over last year.

The coronavirus drove an unprecedented shift to online shopping for Target Corp. in the first quarter, with web sales increasing 141% over the same period a year ago, the retailer announced today.

Comparable-store revenue, including online, for the quarter ended May 2 increased 10.8%, with digital accounting for 9.9 percentage points of that growth and physical store comp sales growing only 0.9%.

However, Target executives emphasized in a call with analysts that stores fulfilled nearly 80% of those orders and played a big role in the 278% year-over-year growth in the value of orders fulfilled through the company’s three “same-day” options: in-store and curbside pickup and delivery by Shipt, which Target owns, to consumers’ homes.

There was a dramatic acceleration in the utilization and awareness of those same-day capabilities.
Brian Cornell, CEO
Target Corp.

“There was a dramatic acceleration in the utilization and awareness of those same-day capabilities,” CEO Brian Cornell said on a call with investment analysts today. He added that the sudden shift in shopping behavior accelerated consumer adoption of Target’s same-day fulfillment services to a level the company had not anticipated reaching for another three years.

He noted that 5 million consumers shopped on Target.com for the first time in the quarter, and that 2 million of them picked up their orders at curbside. He said many shoppers learned they could expect to pick up online orders at a Target store within 2 hours of placing an order, get their order within 2 minutes of arriving in a Target parking lot and receive an order through the paid Shipt service within two hours.

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Executive vice president and chief operating officer John Mulligan told analysts that when customers start using these same-day fulfillment options, they typically buy more overall from Target, both in stores and at Target.com. “When we see guests engage with more of our fulfillment choices they become stronger customers of Target,” he said.

Target is No. 13 in the 2020 Digital Commerce 360 Top 1000.

More parking spaces for drive-up customers

In its earnings press release and call with analysts, Target also reported today:

  • Online order growth accelerated through the quarter, increasing by 33% year over year in February and reaching 282% growth in April.
  • Digitally originated sales jumped to 15.3% of revenue in the quarter from 7.1% in the same period last year.
  • Drive-through pickups of online orders were 1,000% higher in April than in the same month a year ago. Target rolled out curbside pickup over the course of 2019 to 1,750 of its 1,900 stores, and many of its stores would not have had the capability in April 2019, contributing to the dramatic year-over-year growth.
  • Because more customers are driving to stores to pick up their online orders, Target plans to devote more parking spaces to store pickup and add more storage in stores for orders awaiting pickup.
  • The retailer temporarily stopped work during the first quarter on plans to add fresh food and beverages to its curbside pickup assortment because of the sharp increase in demand sparked by the coronavirus outbreak. However, the retailer is now resuming the trial in Minneapolis, beginning it in Kansas City and plans to roll it out more broadly over the course of the year.
  • Shipt, the same-day delivery service Target acquired in 2017 and which serves other retailers besides Target, increased its membership by 60% in the quarter. Order volume, independent of Target, was twice as high during the quarter as last year and three-times higher in April than in April 2019. Shipt hired 100,000 additional employees to select products from stores for online shoppers and deliver orders to their homes. A Shipt subscription costs $99 per year or $14 per month, and shoppers must order at least $35 to get free delivery.
  • Target plans to start opening sorting centers that will receive merchandise from stores and handle delivery to consumers’ homes, in an effort to reduce the burden on stores of fulfilling online orders.

Analysts from Instinet, part of financial services firm Nomura Group, pointed to the signifiance of the big increases in Target’s digital sales and store pickup of web orders. “This highlights the omnichannel aspect of Target’s offering, as much of this is distributed through its stores,” analysts Michael Baker and Steve McManus wrote in a note to investors. “This helps Target, and other strong retailers, compete with Amazon.” Amazon is No. 1 in the 2020 Digital Commerce 360 Top 1000.

Apparel write-downs impair profit

For the fiscal first quarter ended May 2, Target reported:

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  • Total sales of $19.37 billion, an increase of 11.3% from $17.40 billion in the same quarter a year ago. That includes sales from newer stores that are not included in comparable-store results.
  • Comparable-store increase of 10.8%, of which 9.9 percentage points came from increased digital orders.
  • Operating income decreased 58.8% to $468.0 million from $1.135 billion a year ago. Impacting profit was writedowns of inventory, mainly for apparel amid slow sales; higher wages and benefits for workers; and a shift in sales mix to lower-margin categories such as food and cleaning products from more profitable categories like apparel and consumer electronics. Accounting rules require that publicly traded retailers reduce the stated value of merchandise when economic conditions make their inventory less likely to generate revenue, as when Target’s apparel sales fell during the recent quarter.
  • Net earnings of $284 million, a decrease of 64.3% from $795 million a year ago.

 

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