Digital sales growth slows at Target as pandemic peak in e-commerce sales cools
Target Corp. increased its digital comparable sales by 10% year-over-year in the second quarter, after increasing them by 195% in the second quarter of 2020.
In releasing its results last week, Target said digital sales continued to be dominated by same-day services, including online shopping, in-store pickup, curbside, and its day-delivery service. same Shipt. Sales made by these services have increased by almost 55% this year, compared to more than 270% last year. Specifically, curbside sales, which Target calls Drive Up, grew by more than 80% in the second quarter of 2021 after increasing by more than 700% in the second quarter of 2020. BOPIS increased by more than 30% year over year after increasing by over 350% a year earlier. And Shipt grew by around 20% in addition to growth of over 60%.
“Drive Up quickly became the largest, accounting for more sales than Pickup (BOPIS) and Shipt combined,” CEO Brian Cornell said on a results call transcript obtained by Seeking Alpha. “To put it in dollars, over the past two years, second quarter sales through Drive Up have increased by nearly $ 1.4 billion.” Target is # 6 in the 2021 Digital Commerce 360 Top 1000.
Total sales rose 9.4% to $ 24.83 billion, from $ 22.67 billion a year earlier. Digital sales reached $ 4.22 billion, representing 17% of total sales. Net income totaled $ 1.82 billion, up 7.4% from $ 1.70 billion a year earlier. Same store sales, a key measure of retail performance, increased 8.9%.
The percentage of total digital channel sales edged down to 17% from 17.2% in Q2 2020. is well over double the 7.3% we reported in Q2 2019, ”said Michael Fiddelke, Executive Vice President and Chief Financial Officer, during the call.
Visits to stores and its website increased about 13% in the quarter, reflecting the increased comfort for customers to venture into public places compared to last year. As shoppers have returned to physical locations in what the company has described as “the great masses,” online revenue growth has slowed. Still, Cornell noted that more than 95% of total sales are made through stores, demonstrating the company’s investments in integrating its 1,900 locations into the online supply chain.
Target Turns To Higher Margin Items As Sales Growth Slows
Target benefited during the pandemic, as demand skyrocketed for groceries, housewares and more. But as the channel grapples with the strong performance of 2020, it hasn’t exceeded expectations as far as it did last year. “With a very strong core business and a series of successes, the main challenge for Target is to continue to generate strong revenue growth,” said Neil Saunders, Managing Director of GlobalData, in a note. The company is turning to categories like beauty to maintain what has been “impressive” growth, he said.
As the rise in COVID-19 cases fueled by the contagious delta variant puts further pressure on consumer confidence, the retailer leader is optimistic about the company’s outlook. “We continue to see a very optimistic guest,” said Cornell. There has been no noticeable change in behavior since customers “exercise caution where appropriate,” he added.
A growing concern is how much consumer spending is being helped by short-term government stimulus measures, such as monthly payments to families tied to child tax credits. “Wondering what is the true margin profile of this company as we approach 2022? Said Brian Yarbrough, analyst at Edward Jones. The company’s bottom line was also boosted by fewer markdowns because demand is so high, he said. “At one point, it turns around.”
Target said in May that it will increase profitability this year as it sells more higher-margin items, such as clothing, and sales increase despite difficult comparisons. In the second quarter, apparel was the best performer of its five main categories, with double-digit growth.
Target is betting big on the start of the school year
Back to school is a crucial buying time for Target and other chains, which largely missed last year’s boost amid distance learning during the pandemic. The season is still several weeks away and Cornell said it got off to a good start. “If you look at our traffic numbers, that tells me we have a very resilient consumer,” he said. “Right now we are not seeing any adjustment in consumer behavior.
To help back-to-school shoppers, Target launched School List Assist. The functionality, both online and in the Target app, makes it easy for consumers to find their list of specific school supplies and purchase by item or add the entire list with one click.
Executives on the call said the retail chain is also rolling out technology improvements, including a feature to provide backup suggestions when an item ordered for BOPIS, Shipt or curbside is not. available, a chain-wide rollout of numbered parking spaces for customers using Drive Up, and the ability to designate another person through their app to pick up an order.
For its second quarter ended July 31, 2021, Target said:
- Total sales rose 9.4% to $ 24.83 billion, from $ 22.70 billion a year earlier.
- Net income totaled $ 1.82 billion, up 7.4% from $ 1.70 billion a year earlier.
- Digital sales totaled $ 4.22 billion, up 8.2% from $ 3.90 billion a year earlier, accounting for 17% of total sales, up from 17.2% a year earlier.
For the first six months of 2021, Target said:
- Total sales rose 15.8% to $ 48.71 billion, from $ 42.10 billion a year earlier.
- Net income rose 98.2% to $ 3.91 billion, from $ 1.97 billion a year earlier.
- Digital sales rose 25.7% to $ 8.62 billion, from $ 6.86 billion a year earlier, accounting for 17.7% of total sales, down from 16.3% a year earlier.
Percentage changes may not add exactly to dollar figures due to rounding.