Everyone is Raving About Target’s Blockbuster Digital Sales, But CEO Says Physical Stores Actually Drove 90% of 2Q Growth
Target CEO Brian Cornell made a powerful case for brick-and-mortar retail today after the chain revealed a stellar second-quarter performance.
While everyone is raving about Target’s blockbuster digital sales, Cornell said in a conference call that physical stores drove 90% of the quarter’s growth “given that they enabled more than 3/4 of our digital sales.”
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Store-based fulfillment is something Target has been focused on for the past several years. “It aligns with our merchandising approach, which is based on curation, both in our stores and online assortments. As a result, the majority of our digital demand is driven by items that are already available in our stores, which positions us to efficiently rely on those locations,” Cornell said.
Speed has been critical to Target’s success as consumers tap into same-day options such as in-store pickup, Drive-Up curbside services and the Shipt grocery delivery service.
The Minneapolis-based retailer said its same-day fulfillment offerings increased 273% in the quarter. Its fastest growth was seen in the Drive Up service, which surged more than 700%. Year-over-year sales fulfilled by its Shipt service also were up 350%, while in-store pickup sales rose 60%.
It’s important to note that even during the pandemic, Target consumers did want to shop in store — and they fueled a huge “dramatic comp acceleration” in the apparel category as Target’s essential retailer status gave it a leg up when competitors were closed.
“In terms of channel mix, we saw a healthy growth across the board with store-originated comparable sales growing 10.9%, and digital comp sales up nearly 200%,” Cornell noted. “It’s worth pausing to acknowledge that at just under 11%, this store-only comp stacks is one of the best in our history. And yet, it happened at a time when American consumers are adopting digital shopping like never before. In addition, as I’ve mentioned in previous calls, channel numbers don’t tell the full story because they don’t measure the benefit of our work to position our stores as hubs at the center of our digital fulfillment.“
Cornell said that said even though it has offered pickup in all of its locations for more than 5 years, in-store pickup sales increased more than 60% in the quarter.
In addition, Target consumers who are shopping across multiple channels spend four times as much as store-only customers and 10 times as much a digital-only shoppers. “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 their conventional store shopping,” said EVP and COO John Mulligan in the call.
Overall, Target added an impressive 10 million new digital customers during the quarter as well as $5 billion in market share.
While the e-commerce business and digital fulfillment is more expensive than traditional selling in store, Target also said it is becoming more efficient in these areas.
“Our second quarter average unit costs for digital fulfillment was approximately 30% lower than a year ago,” Mulligan said. “This provided a significant offset to the cost pressure we would otherwise be seeing from our unusually high rate of digital sales growth.”
Target revealed adjusted earnings per share of $3.38 — 85.7% higher than the prior year period. Revenues also vaulted 24.7% to $23 billion, besting expectations of $20.09 billion. Target shares were up more than 11 percent at noon today.
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