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Digital provides some green shoots for Target after another quarter of revenue decline

Stuart Lauchlan Profile picture for user slauchlan May 23, 2024
Summary:
Drive Up and same day services combine with a revamped loyalty program to provide signs of life.

green shoots

Target’s plight isn’t getting much better based on the retailer’s latest quarterly numbers - Q1 revenue of $24.1 billion was down 3.7% year-on-year, while net income was down to $942 million, down 0.8%. 

But there was one bright spot - digital, an area in which Target has been regarded as a leader, saw growth for the first time in over a year, albeit by only 1.4%. Digital’s contribution to overall revenues now stands at 18.3% compared to 17.5% a year ago.

The return to form here was picked up on by CEO Brian Cornell, who said:

This growth was driven by our same-day services, Drive Up, In-Store Pickup and same-day delivery, which has been rapidly embraced by our guests in recent years. In the first quarter, our same-day services saw high single-digit growth over last year, led by Drive Up, which grew in the low teens.

This builds on the explosive growth of Drive Up that occurred during the pandemic, which was followed by double-digit increases in both 2022 and 2023. Altogether, at more than $2 billion in Q1, Drive Up sales were more than 30 times larger than we saw in the first quarter of 2019.

Loyalty 

Chief Growth Officer Christina Hennington also pointed to improvement coming from the Target Circle free-to-join loyalty program, which was given a re-launch last month. While it’s clearly early days, Hennington was able to boast that the retailer has attracted one million new members since that relaunch:

Our guests tell us they find the program easier to use, appreciate the clarity of the promotions offered, and understand the value provided with their membership. Social sentiment is up compared to a year ago, and mentions of Target Circle on social platforms increased by more than 500% versus last year, boosted by our immensely popular marketing campaign featuring Saturday Night Live alum Kristen Wiig revisiting her role as the Target lady.

In addition to these memorable ads, guests are responding to the automatic application of Target Circle deals when they shop, giving them confidence that they are always getting the best deal on every Target run. Plus strike through pricing on target.com and our app helps guests to clearly see the value they're receiving on those offers. We believe that pricing and value transparency will only become more important with time and that we can continue to grow awareness of the great value we offer across our assortment.

Target Circle Week last month drove “outsized benefit to our digital performance”, she added, with the highest traffic to the Target website and app in the past year, outside of the Holidays season.

Re-modeling

Elsewhere, re-modeling work is continuing on Target’s digital platforms, Hennington explained, with a focus on generative AI and personalization capabilities:

We recently engaged in a pilot with one of our biggest vendors to test our latest personalization capabilities with guests shopping our personal care categories. We're very encouraged by early test results, which showed a nearly three times lift in conversion rates from personalized promotions versus mass offers, including higher sales lift across the rest of the category as well.

In addition to driving more personalization, we're also focused on growing relevance, particularly where there may be opportunities in our current online assortment. As we've shared previously, we think our digital marketplace, Target Plus, will play an outsized role in our growth in the quarters and years to come, even as we continue to prioritize the curation of both our assortment and digital partners on the platform. In the past year, we've more than doubled the number of partners and products hosted on Target Plus. We are excited to expand offerings with current partners and introduce new brands to the platform in Q2 and beyond.

Overall, the lines between physical and digital shopping continue to blur even further, she concluded: 

We're taking an industry leading position to minimize the distinction further. In fact, we view digital as more than just a sales channel. It's also the connective tissue across most of our transactions. Around half of guests that open the Target app on a given day make in-store purchases with us that same day. Guests look to our digital platforms for inspiration, helping to plan their next in-store target run. They use the app while in our stores to check prices, compare products, and even navigate our stores more seamlessly. And whether they are choosing to walk through our physical or digital front door, we want to provide the inspiring and welcoming Target experience our guests expect from us.

My take

Our team is doing an outstanding job in a complicated environment, planning prudently while staying agile and responsive. 

Cornell and his team still have a lot of work to do to get things convincingly back on track, but there are clear ‘green shoots’ to be seen. Target’s re-invented itself before; it can do so again.

Onwards!

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