Target (TGT) Adapts to New Normal as Shoppers Go Online

Amid fears of the ongoing pandemic and resultant social distancing, retailers have been directing resources toward digital platforms, accelerating fleet optimization and augmenting supply chain. In fact, companies have been expanding delivery options and contactless payment solutions to provide a seamless shopping experience. No wonder, Target Corporation TGT has been aggressively adopting strategies and making planned investments to cater to consumer demand and behavior in the new normal.

This general merchandise retailer has been making investments to enhance omni-channel capacities, come up with new brands, and remodel or refurbish stores in the wake of rising competition from Amazon AMZN, Kroger KR and Walmart WMT. Undeniably, Target is leaving no stone unturned to improve top-line performance and expand customer base.

Markedly, Target witnessed sturdy market-share gains in all five core merchandise categories during second-quarter fiscal 2020 owing to strong demand. Consumers splurged on office items, video games, décor, domestics and kitchenware as they work, learn, dine and play at home. While electronics sales soared more than 70%, apparel sales rebounded from a 20% decline in the first quarter to double-digit growth in the second quarter. Home and beauty rose by more than 30% and 20%, respectively. Notably, both essentials and food & beverage were up by about 20%.

We note that stores fulfilled more than 90% of the company’s sales in the quarter. Same-day services (Order Pick Up, Drive Up and Shipt) surged 273% and accounted for roughly 6 percentage points of total comparable sales growth. Sales fulfilled by Shipt were up more than 350% year over year and sales through Drive-Up were up more than 700% during the quarter under review. In-store pick-up sales rose more than 60%.

Meanwhile, comparable sales for the quarter increased 24.3%, backed by a 18.8% jump in average basket as consumers consolidated trips amid the pandemic. The number of transactions rose 4.6%. Digital comparable sales soared 195% and added 13.4 percentage points to comparable sales. Store originated comparable stores sales grew 10.9% during the quarter.

Wrapping Up

The COVID-19 crisis is a litmus test for all consumer-driven industries. Better pricing, effective inventory management, and merchandise and operational initiatives should boost revenues. However, stiff competition and costs associated with promotional activities are major deterrents. That said, we believe that Target has carved out a niche in this ultra-competitive retail landscape, and is rapidly adapting to the growing digital ecosystem.

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