Target Gains Ground in Stores and Online, Stemming Declines

But fierce competition is not abating

Author: Andria Cheng

August 16, 2017

Target ended a string of same-store sales declines, as its focus on pricing, unveiled after a tough fourth quarter, helped drive increased store traffic and stemmed negative food and beverage trends.

The positive signs weren't limited to food and household goods either: Target, long known for its cheap chic image, said it gained sales and share in the apparel and home categories, and it racked up a huge ecommerce sales gain.

If there is a shadow over the results, it's only that its two most serious competitors, Amazon and Walmart, may be moving even faster than Target is.

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The Minneapolis-based company on Wednesday posted a 1.3% Q2 same-store sales gain, its first in five quarters. Customer visits picked up more than it expected, reversing previous declines to turn positive. Online, sales rose 32%, double the year-earlier rate and the biggest contributor to the quarter’s comparable sales increase. Target also raised its previous downbeat full-year forecast.

The results, said CEO Brian Cornell, give the company increased confidence that they are focusing on the right long-term strategies.

One of the key long-term strategies is to be price competitive. Target took a hit on profit—Q2 gross margins dipped—by cutting regular prices on some key food and household products in an effort to re-assert its price credibility with consumers.  The discount retailer also started a Target Run and Done campaign focusing on essentials to spur customers’ quick fill-in trips and make them think of Target as a one-stop shop.

Those initiatives have helped to boost both traffic and the number of items shoppers bought, although the average transaction amount declined. Comparable sales in food and beverage were flat, after prior declines. Food and other essential categories, which totaled 44% of Target’s sales last fiscal year, are critical to get right because they are key to driving foot traffic. That’s especially pressing as consumers increasingly shop online.

Responding to consumers' convenience needs, Target is also adding more ready-to-eat, heat, or cook offerings, Chief Merchandising Officer Mark Tritton said on the call Wednesday.

In Target’s sweet spot of apparel and home categories, made famous by limited exclusive designer partnerships such as this year’s Victoria Beckham collection, the company said it’s gained sales and market share. 

Target, which has more than 1,800 stores, is also in the middle of remodeling more than 300 stores by the end of next year and plans to open more than 100 small format stores in dense urban and suburban neighborhoods and at colleges over a three-year period. Early results for the small format stores have been strong.

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Target Bulks Up Its Delivery Muscle

Target in June introduced same-day delivery service for purchases made at its store in New York’s Tribeca neighborhood. Expansion to other stores and online also will be coming: Target on Monday said it’s buying startup Grand Junction, which services same-day and local delivery needs.

Online, Target is catching up to larger rival Walmart on the curb-side pickup feature, which Target in the fall will introduce in its Twin Cities area stores to consumers after a test with employees. Like Walmart, Target is also turning its store fleet as advantage against Amazon in expanding the number of stores to more than 1,400 this fall that can service and ship online orders. The idea is those stores can ship goods faster and help retailers cut costly last-mile delivery expense.

Still, Target is fighting against competitors that are also moving just as fast, if not faster. For instance, despite Target’s ecommerce growth, Slice Intelligence data showed that Target’s share of online sales dipped slightly to 1.75% in the 12 months ended July from 1.78% in the 12 months ended July 2016. In comparison, Walmart, with its various aggressive online moves including Pickup Discount, saw its ecommerce market share inched higher to 1.81%, beating Target’s, from 1.70% during the same period.

Not surprisingly, Amazon’s share picked up at an even faster pace, rising to 41.07% from 40.31%, according to Slice Intelligence’s study of online receipts from a panel of 2.45 million US online shoppers.