Stores fulfilled more than three-quarters of those online sales. Target also has gained 10 million new digital customers so far this year.

Target Corp. continues to reap hefty rewards from investing in omnichannel—having implemented same-day delivery, ship from store and curbside capabilities before the nationwide pandemic hit. And now, it’s also managed to draw cautious consumers back to its stores. That one-two punch helped the retailer post record sales growth for its fiscal second quarter ended August 1.

Web sales grew 195% over the same period a year ago at Target, No. 12 in the 2020 Digital Commerce 360 Top 1000. Comparable-store revenue, including online, grew 24.3%—the highest amount the company has ever reported—with digital accounting for 13.4 percentage points of Target’s comparable sales growth and physical store comp sales 10.9 percentage points. This shows that even at a time when U.S. consumers are leery of venturing inside a retailer’s four walls, Target can still draw them in thanks to its merchandising.

“It’s worth pausing to acknowledge that it’s just under 11 [percentage points], this store-only comp stacks up as of the best in our history,” CEO Brian Cornell said on an earnings transcript obtained from Seeking Alpha. “And yes, it happened at a time when American consumers are adopting digital shopping like never before.”

That’s a feat even chief rival Walmart Inc. (No. 3) couldn’t pull off, with the bigger retailer reporting this week a 14% drop in U.S. transactions—a proxy for both in-person and online customer traffic. Target’s, meanwhile, rose 4.6%.

But digital is still the brightest spot for the retailer. “Our year-to-date digital sales of nearly $7 billion have already eclipsed our full-year digital sales in 2019, even though the peak holiday shopping season is still ahead of us,” chief operating officer John Mulligan said on the earnings call.

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Stores drive digital sales

Stores are helping drive digital as they fulfilled more than three-quarters of Target’s digital sales and more than 90% of its total second-quarter sales.

The retailer also said that the value of web orders fulfilled through its same-day services—Order Pick Up (BOPIS), Drive Up (curbside pickup) and orders fulfilled using delivery by Shipt, which Target owns—grew 273% during its second quarter and accounted for approximately 6 percentage points of the company’s total comparable sales growth. Value of Drive Up sales alone grew 734%, Target says. Fulfillment by Shipt grew more than 350% and in-store pickup sales increased more than 60% in the quarter.

The value of orders shipped from stores has grown more than $1.6 billion this year, Mulligan said. Sales from pick up and drive up services have also together grown more than $1.6 billion so far this year, with Drive Up accounting for well over $1 billion of that growth. “And of course, much of this year’s growth has been unplanned…and store teams have had to adjust quickly in real-time,” he said.

Additionally, Target reported 10 million new online customers in the first half of the year, spread evenly between the two quarters, showing the retailer’s continued ability to attract first-time digital shoppers. Mulligan said these new digital customers “behave like the rest of our guests,” but one promising note is that their repeat-purchase rate is higher than normal. In other words, they come back to buy more and at a faster rate than Target’s existing shoppers. “It appears they are much more engaged with us,” he said.

Target also said it has resumed its plans to add fresh, refrigerated and frozen items to its pickup and drive-up services. To meet the increased demand for Drive Up, it is adding additional parking spots—between two and 12 additional spots depending on store specific needs—for the services to stores, repainting the parking stalls and using additional temporary signage to highlight the change, Target says.

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“Our research continues to validate that after a guest tries Drive Up for the first time, we see a nearly 30% increase in their overall spending, including an increase in our conventional store shopping,” Mulligan said. 

Target’s multi-channel guests spend four times as much as store-only guests, and 10 times as much as digital-only guests, he added.

Profitability surges

Profitability for the quarter also surged as operating income increased to $2.30 billion, up 73.8% from $1.32 billion a year earlier. That’s in part because its average cost to fulfill each digital order declined about 30%.

Costs come down when order flow soars, as staffers can pick and pack more orders together and gain efficiency, Target said on the earnings call.

Hilding Anderson, head of retail strategy, North America, at digital consultancy Publicis Sapient, says Target’s Q2 results illustrate that stores can grow ecommerce and maintain and improve their profitability at the same time. “This is going to be a pattern we’ll see again, as companies realize that running omnichannel businesses require the hard work of planning and optimization using data, experience and technology. Look for more companies to apply these tools to drive growth and improve profitability,” he says.

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Still, there are some weaker spots. Cornell said the school-shopping season has “started more slowly than usual,” but that comparable sales so far in August were still above 10%.

For the fiscal second quarter ended Aug. 1, Target reported:

  • Total sales of $22.70 billion, an increase of 24.8% from $18.18 billion in the same quarter a year ago. That includes sales from newer stores that are not included in comparable-store results.
  • Comparable-store sales increase of 24.3%, of which 13.4 percentage points came from increased digital orders.
  • Operating income increased to $2.30 billion, up 73.8% from $1.32 billion a year earlier. “We generated outstanding profitability in the quarter, even as we made significant investments in pay and benefits for our team,” Cornell said.
  • Net earnings of $1.69 billion, up 80.3% from $938 million a year ago.

For the first six months of its fiscal year, Target reported:

  • Total sales of $42.07 billion, an increase of 18.2% from $35.58 billion for the same period a year earlier.
  • Comparable-store sales increase of 17.7%.
  • Operating income increased to $2.77 billion, up 12.6% from $2.46 billion a year earlier.
  • Net earnings of $1.97 billion, up 13.9% from $1.73 billion.

Percentage changes may not align exactly with dollar figures due to rounding.

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