Target Corp. online sales were a bright spot in the retailer’s fiscal Q1, growing while total sales declined year over year.

Overall, Target sales and traffic declined in Q1, CEO Brian Cornell told investors on the retailer’s earnings call.

Target net sales fell 2.8% year over year in Q1, to about $23.85 billion from $24.52 billion. Traffic decreased 2.4% year over year, while Target’s average order value fell 1.4% in Q1.

Cornell cited a variety of pressures during the quarter, including months of declining consumer confidence as well as uncertainty regarding the impact of potential tariffs. Along with ongoing pressures on its discretionary categories since the pandemic, Target has also struggled with “historically high inflation.”

“While we believe each of these factors played a role in our first quarter performance, we can’t reliably estimate the impact of each one separately,” Cornell told investors. “I want to be clear that we’re not satisfied with this performance and we’re moving with urgency to navigate through this period of volatility.”

He added that Target’s merchandising team has been working to mitigate the impact of tariffs.

“And the difficulty level has been incredibly high, given the magnitude of the rates we’re facing and a high degree of uncertainty on how these rates and impacted categories might evolve,” Cornell said. He added that Target has “many levers to use in mitigating the impact of tariffs, and price is the very last resort.”

Target is No. 5 in the Top 2000. The database is Digital Commerce 360’s ranking of North America’s online retailers by web sales. Target is also No. 80 in the Global Online Marketplaces Database, which ranks the 100 largest global marketplaces by third-party gross merchandise value (GMV). Digital Commerce 360 categorizes Target as a Mass Merchant.

Target online sales in Q1

In Q1, Target online sales grew 4.7% year over year. That slightly offset a comparable store sales decline of 5.7%. As a result, total comparable sales fell 3.8% in Q1.

Target’s first-party online sales in Q1 grew in the mid-single-digit range, Cornell said. Same-day delivery through Target Circle 360 led that growth, increasing 36% in Q1. Drive Up also now accounts for nearly half of the retailer’s total digital sales, he added.

Beyond the direct benefits of rising digital sales, he said, they also fuel the growth of profitable services Roundel and Target Plus. Roundel is Target’s retail media network. Target Plus is the retailer’s third-party digital marketplace. Both saw double-digit growth in Q1, Cornell said.

Chief commercial officer Rick Gomez said the retailer has set a goal to grow the Target Plus marketplace’s gross merchandise value (GMV) to $5 billion by 2020. In Q1, Target Plus GMV increased more than 20% as the retailer added “hundreds of new partners to the platform,” he said. That both drove traffic and increased conversion online, he added.

Target is implementing changes to make same-day delivery more affordable as a way to build engagement with new and existing Circle 360 members, Gomez told investors. As of the week of May 19, Target has “introduced no price markups on same-day delivery for the more than 100 retailers available on Shipt’s marketplace,” he said.

Shipt is a delivery service Target owns, headquartered in Alabama. Target acquired Shipt in December 2017.

Target improves fulfillment speed in Q1

Chief operating officer Michael Fiddelke said despite the challenges Target has been facing, it is “making meaningful progress” in:

• Improving in-stocks and inventory reliability
• Faster and more efficient fulfillment of digital orders
• Improvements in both in-store and digital shopping experiences

In Q1, Target’s average click-to-deliver speed was about 20% faster than the same quarter last year, Fiddelke said.  Same-day services also grew 5% year over year in Q1, he said.

Target fulfilled more than 70% of all Q1 online sales within a day, according to Fiddelke.

“One of the ways we’re increasing shipping speed is by utilizing Shipt’s network of independent drivers to deliver packages from sortation centers, and in some cases, directly from stores,” he said.

Shipt drivers fulfilled 24% more deliveries year over year in Q1, he said, speeding up delivery and reducing costs at the same time.

“We see a lot of room to continue increasing the adoption of services like Drive Up and same-day delivery, while we also expand next day shipping to more and more guests over time,” Fiddelke said.

Target chooses where to open its physical stores based on locations that are both convenient for consumers and situated near other prominent retailers. This helps it increase visibility while allowing it to offer same-day delivery for other retailers on Shipt’s marketplace, Fiddelke said. Additionally, because Target fulfills the majority of its online orders from stores, investments in its stores are also investments in its supply chain, he said.

As a result, he said, Target stores fulfilled 96% of its total sales volume in Q1.

How Target plans to offset tariff impacts

Gomez said Target has been working to “minimize tariff headwinds through multiple strategies.” Those include:

• Negotiating with vendor partners
• Reevaluating assortment decisions
• Changing country of production where possible
• Adjusting order timing
• Adjusting prices

“All in, these efforts are expected to offset the vast majority of the incremental tariff exposure,” Gomez said.

Half of what Target sells comes from the U.S., Gomez said.

“But beyond that, we have the most control of where we produce when it comes to our own brands,” he added.

In 2017, 60% of what Target sold came from China. That’s down to 30%, and Target expects it to be less than 25% by the end of next year, according to Gomez. The retailer is expanding its sourcing into other countries in Asia as well as others in the western hemisphere, he said, noting that it is also “exploring opportunities” in the U.S.

Still, chief financial officer Jim Lee said Target expects Q1 headwinds — sales pressure, tariff impacts and the cost of adjusting inventory — to continue into Q2.

Check back for more earnings reports. Click here to read last quarter‘s article on Target earnings and online sales.

Do you rank in our databases? 

Submit your data and we’ll see where you fit in our next ranking update.

Sign up

Stay on top of the latest developments in the online retail industry. Sign up for a complimentary subscription to Digital Commerce 360 Retail News. Follow us on LinkedIn, X (formerly Twitter), Facebook and YouTube. Be the first to know when Digital Commerce 360 publishes news content.