Target's Recovery Looks Like the Real Thing
The nascent turnaround at Target Corp. is starting to look durable.
The big-box retailer reported Tuesday that comparable sales increased 3.6 percent over a year earlier in the crucial holiday quarter. The results got a lift from particularly strong sales in January, meaning the strength wasn't limited to the Christmas gifting rush.
When you consider the factors that drove the improvement, things look even better for Target: The company said it recorded comparable sales growth across all of its core merchandise categories. And transactions rose a healthy 3.2 percent from a year earlier, reflecting better traffic to both its stores and website.
And perhaps most important of all, Target's digital performance was solid in the quarter, with online sales up 29 percent over the same period last year. In fact, if I were a Target executive, that's the number I'd tout the most in order to convince investors the retailer is doing a better job of holding its own in today's shopping environment.
That growth is significantly better than the 11.5 percent increase in non-store sales -- which includes online sales -- the retail industry overall recorded during the holiday season.
But more importantly, it's stronger than Walmart Inc.'s 23 percent growth on this measure in the quarter.
For a long time now, the narrative has been that Walmart's U.S. e-commerce chief Marc Lore rode in on a white horse and was molding the chain into the only credible challenger to Amazon.com Inc. in online retailing. If Target can keep up its digital momentum as Walmart's has slowed, then it could change the conversation about the great digital showdown, casting it as more of a three-way fight.
Yes, those digital sales came at a cost for Target: The company said its gross margin rate was 26.2 percent in the quarter, lower than 26.6 percent in the fourth quarter of 2016. It largely chalked up the decrease to e-commerce fulfillment costs.
But as I've written previously, the alternative for Target is worse. If it doesn't spend money on building its e-commerce market share now, it will severely hurt its chances of thriving over the long haul.
Target on Tuesday forecast a "low single-digit" increase in comparable sales for the year ahead, and we already have a pretty good idea of how it means to achieve that.
As part of a three-year, $7 billion investment plan it laid out last year, Target has committed to rolling out more private-label brands and remodeling hundreds of stores, making them into more-attractive shopping environments that are better equipped for services such as in-store pickup for online orders.
Later Tuesday morning, executives will update investors on their strategic plans. Much of the reaction to that blueprint will probably hinge on what Target says it will do on the digital front.
The company shelled out $550 million in December to buy same-day delivery start-up Shipt, and it's already rolling out such services to Target shoppers. This hints the company is ready to make some bolder moves to try to catch up to Amazon.
And that's as it should be. Target's on the right track, but can't stop taking big steps.
To contact the editor responsible for this story:
Mark Gongloff at firstname.lastname@example.org