Target Q1: sales growth enhanced by digital capabilities

Date : 22 May 2019

We review Target’s first quarter performance as it continues to build sales momentum and invest in its digital capabilities.

Target’s key numbers

Target’s first quarter sales increased 5.1% to $17.4bn, with comp store sales up 4.8%. Comparable digital sales increased 42%, contributing 2.1 percentage points to the overall comp sales growth. Operating income increased 9.0% to $1.1bn. These results represent another strong quarter from the business, reflecting its multi-year investments in store remodels, new formats, range development and digital fulfillment. Food and beverage comps were up around 3%.

Over 80% of digital volume fulfilled by store-level inventory

Target’s digital investments have been transformational for the business. During Q1, more than 80% of its digital volume was fulfilled by store level inventory. Over the last three years, the retailer has added ship-from-store capabilities to almost all its stores, significantly changing its stores operation and its financial model. This enables it to offer one of the most comprehensive fulfillment models in the US, including same-day, next-day and two-day delivery, along with store pickup. Target remains confident that its stores-based model will remain feasible as its digital volumes continue to grow.

Growing its most profitable digital fulfillment models

Shipt dame-day delivery, order pickup and its drive-up services are its fastest growing, which are also Target’s most profitable fulfilment models. As it moves digital fulfillment from its distribution centres to stores, costs are reduced by around 40%. For some of its same-day fulfillment models, the cost reduction is around 90%.

Source: IGD Research

Monitoring impact of tariffs

With tariffs front of mind for all US retailers, Target continues to monitor the impact of trade negotiations. Contingency plans are being developed to help mitigate the impact on shoppers and the wider business. Last year’s tariffs had minimal impact, supported in part by Target’s multi-category model and diversified manufacturing base.

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