Target has been making big investments in delivery and fulfillment, as well as remodeling stores and introducing more private labels. These initiatives might not have all paid off yet, but according to Q1 earnings it looks like the retailer is on the right track.
On Wednesday, Target reported that Q1 2018 sales hit $16.56 billion, up 3.5% over Q1 2017, and digital sales grew 28%, a larger increase than the same time period last year (21%). In-store was also positive as foot traffic was up 3.7%, the strongest growth in 10 years.
"Despite Target's Q1 performance coming in below expectation, the 3.7% rise in in-store shoppers—its strongest performance in over a decade—indicates that brick and mortar is alive and well," said Brennan Wilkie, senior vice president of customer experience strategy at InMoment, in an email. "So while there may be short-term concern, the unique customer experience of 'going on a Target run' remains valuable and memorable for consumers and will be difficult for competitors to duplicate."
The competition for fast, cheap delivery is fierce and Amazon keeps raising the bar. "For a retailer like Target that's competed on price for so long, there's no way they can continue following this strategy and win against Amazon," said Ed Kennedy, senior director of commerce at Episerver. "The good news is that we've seen Target implement a variety of innovations over the last few quarters to differentiate themselves in other ways."
One of Target's responses has been investing heavily in omnichannel initiatives. Target acquired startup Shipt in late 2017 and launched same-day delivery in 700 stores via Shipt in Q1 2018. The retailer also introduced drive-up pickup to 250 stores and rolled out "from store, same-day delivery" via a third-party courier service to 55 stores in more dense urban locations (NYC; Boston; Chicago; Washington, DC; and San Francisco).
During the company's recent earnings call, executive vice president and COO John Mulligan reported that the average basket size for Shipt orders was almost double the average basket size, which is potentially offsetting the delivery costs. "As we lower the actual cost to deliver, the team continues to focus on driving the average basket size to lower the cost per unit and improve the unit economics across all of our digital business," he said.
eMarketer categorizes Target as a discount and variety store along with Walmart, though it competes across multiple categories, including grocery and apparel. Home and beauty were called out in the call as strong performers in Q1.
Mark Tritton, Target's executive vice president and CMO, explained the retailer's perceived strengths based on customer surveys. "We're receiving higher scores on convenience, reflecting the benefit of our work on fulfillment. We're also seeing rising scores on multiple measures of value, including our everyday pricing, having great sales, and delivering a great deal," he said.