How Target plans to spend $4bn to retain its pandemic gains

Date : 03 March 2021

Stewart Samuel

Program Director - Canada

We look at Target’s latest results and its strategic update which included details of its investment programme for the next few years. This includes a $4bn annual investment plan in digital commerce, new stores and remodels and its supply chain.

Q4 key numbers

  • Total revenue up 21.1% to $28.3bn
  • Fourth quarter comparable sales increased 20.5%, with traffic up 6.5% and average ticket up 13.1%
  • Comparable store sales up 6.9%
  • Digital comparable sales up 118%, with same-day services up 212%
  • More than 95% of sales fulfilled by its stores (equivalent of $47m per store)
  • Net earnings increased 65.6% to $1.4bn
  • For the full year, total revenue increased 19.8% to $93.6bn, with net earnings up 33.1% to $4.4bn

Source: Target

Winner takes it all

Target’s fourth quarter results rounded-off an exceptional year for the business, where it emerged as one of the clear winners of the COVID-19 pandemic. Earlier year investments in digital commerce, including its decision to position its stores as key hubs within its distribution network, enabled it to scale up and respond at pace to the accelerated demand in online shopping. Over the course of the year, the retailer increased its sales by over $15bn, delivering more growth than the previous 11 years combined, and while digitally originated sales represented almost 18.0% of sales, it continued to deliver profit growth. The appeal of its multi-category, one-stop shopping proposition was particularly relevant during the pandemic, with Target growing 10 of its private label ranges into billion-dollar brands.

The value of a multi-channel shopper

The latest quarterly results demonstrate the continued strength of the Target offer, recording both traffic and basket gains; shoppers are visiting more often, and spending more during each trip. Most retailers have yet to see a snap-back to positive traffic as shoppers continue to consolidate their trips. The range of delivery and pickup services which have been developed over the last four years provide customers with multiple options, improving access to its offer. This approach brings significant benefits to the business. Over time, multi-channel shoppers spend on average nearly 4x more than a store-only guest and nearly 10x more than a digital-only shopper.

Stepping up it annual investment plan

Building on this platform, the retailer is committing to investing $4bn annually over the next several years to enhance the business, including its same-day services, and retain the gains it has made during the pandemic. This is a step-change in its investment plans, which have been in the $2.5bn to $3.5bn range over recent years as it has undertaken much of the heavy lifting to reposition the business.

1. Improving same-day services

Building on the roll-out of grocery items last year, it plans to make additional fresh food items available for pickup, while also expanding adult beverages to 800 more stores. The expansion of its grocery ranges has helped to increase visit frequency by around one trip per month and increase spending by these shoppers on food and beverage by 20-30%, plus an additional 20% in other categories. Target will also optimise technologies to create more personalised experiences for customers of its same-day services, all of which experienced significant growth in 2020. Use of Drive Up increased more than 600%, its Shipt delivery service saw growth of more than 300%, while in-store Order Pickup grew more than 70%.

2. Ramping up store remodels and small formats 

Following the opening of 30 new stores in 2020, most of which were smaller format stores, the retailer plans to open 30-40 stores annually. It will also continue with its programme of remodels, aiming to complete 150 this year and ramping up to 200 per year from 2022. Many of these will enable it to bring its brand partnerships to life, including the debut of its tie-up with Ulta Beauty.

3. Expanding sortation centre concept

Expanding the scope of its store-based fulfillment model, Target also plans to have six sortation centres open by the end of the year, following a successful test in 2020. These centres enable the retailer to pull packages from local stores multiple times a day, where they are sorted by neighbourhood to be delivered by its third-party partners. This provides the stores with more space and time to deliver more orders, reducing lead times for customers and lowering costs. The retailer will also open four new distribution centres over the next two years to strengthen its replenishment and ship-from-store capabilities, while also expanding its use of robotics to improve product flow to stores.

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