Target Corp. reported yet another strong quarter for ecommerce, continuing its digital momentum since the pandemic began. The retail chain’s online sales increased 50.2% to $4.43 billion year over year in its fiscal first quarter ended May 1—a big jump considering digital sales in Q1 2020 grew 140.6%.
Ecommerce accounted for 18.3% of all sales in the quarter, up from 15.3% in the same period a year ago. This shows Target customers are increasingly choosing to shop online even when there aren’t strict lockdowns as there were at the start of the pandemic during Target’s fiscal Q1 2020. Total revenue in the quarter increased 23.4% to $24.19 billion, up from $19.61 billion a year ago.
Target’s brick-and-mortar locations remain crucial to its digital growth. The retailer fulfilled 95% of all sales (in stores and online) from its physical stores. More telling is that 75% of online orders were either picked up in store, curbside or shipped from a store.
Combined, fulfillment of all digital orders through same-day services, including curbside pickup, buy online pick up in store and delivery through Target’s partnership with delivery vendor Shipt, grew 90% year over year. Growth was led by curbside pickup, what Target calls Drive Up, which grew 123% year over year. Drive Up accounted for 30% of digital sales, or $1.39 billion, in Q1 2021, up from just 5% in the first quarter of 2019.
“For us, the distinction between a store sale and a digital sale is largely irrelevant,” CEO Brian Cornell said on a call discussing the results with investors, according to a SeekingAlpha transcript. “In total, more than 95% of Target’s first-quarter sales were driven by our store assets, store inventory and store teams. The store-driven growth is translating to outstanding bottom-line performance.”
The retail chain will lean in into its same-day services with more investments in the coming year. Target plans to add more perishable food to pickup and curbside services and a bigger general merchandise assortment, such as apparel, available through Shipt this year. In Q2, alcoholic beverages will be available through in-store pickup and Drive Up in more than 1,200 stores and available for same-day delivery in more than 600 stores. Additionally, the retailer plans to redesign the front of stores at 100 locations to free up additional capacity for same-day services and make the layout more efficient for employees.
What’s important about Target’s same-day services is that ecommerce orders become more profitable because online orders typically put a strain on the bottom line with shipping and fulfillment costs. “The rate impact of supply chain and digital fulfillment costs was approximately neutral compared to last year, as the cost of outsized digital growth were offset by the benefit of a stronger mix of same-day fulfillment and our ongoing work to control unit costs across our entire suite of digital fulfillment options,” executive vice president and chief financial officer Michael Fiddelke said on the call.
Furthermore, Target’s omnichannel consumers spend more. “When guests lean into digital, when we get more omnichannel guests, more guests using Drive Up [and] more guests using same day. Even if that sale itself comes at a slightly lower rate, it does incredible things for the rest of our P&L [profit and loss statement] because we see those guests spend more in total, about 30% more for a new Drive Up or Shipt guest,” Fiddelke said.
Target’s net earnings for the quarter were up 639.8% to $2.61 billion from $329.0 million in Q1 2020.
The retailer noted shoppers shift in spending from food and essentials to dresses, travel gear and items for home entertaining. In the first quarter, apparel sales rose more than 60%, home goods were up about 35% and items like appliances and sporting goods increased more than 30%. This compares to a dip in apparel sales in Q1 last year and a high single-digit increase in home a year ago.