Digital sales slow down at Target as omni-channel consumers return to the stores - the future lies this way?

As the retailer that has for so long been the omni-channel bellwether, Target’s latest quarterly numbers might well be relied upon to validate further the thesis that the COVID booster to online shopping is flattening out. This has been seen across many retailers of late, not least Walmart yesterday and the likes of Albertsons earlier this week.

It’s been a similar story at Target. Total revenue grew 9.5% year-on-year to top $25 billion. Digital sales were up 10% year-on-year - that’s down from the giddying 195% growth for the same quarter last year as well as down sequentially from Q1 when the growth rate was 50%. At the same time, footfall in-store has risen 13% year-on-year, accounting for the majority of Q2 growth.

It’s a sign of changed times, suggested CEO Brian Cornell:

Traffic accounted for more than 100% of our second quarter growth in contrast to a year ago when guests were limiting time out of their homes and the bulk of our growth was coming from bigger transactions.

But the firm’s longstanding investment in omni-channel capabilities continues to pay off, he said:

In terms of our business, the last 18 months have proven, beyond a doubt, the flexibility and resilience of both our team and our business model. And while sales in stores have been soaring so far this year, our operations and the team have demonstrated how they can pivot seamlessly between stores and digital commerce based on how our guests choose to shop.

He added:

The digital channel continues to be led by our same-day services, in-store pickup, Drive Up, and Shipt, which together, grew 55% this year, on top of more than 270% last year. Given their rapid expansion, same-day services now account for well over half of our digital sales. Among those same-day options, Drive Up has quickly grown to be the largest, accounting for more sales than Pickup and Shipt combined.

Automating the future

Behind the scenes, work continues on enhancing Target’s tech stack, witha a big focus on more automation throughout the supply chain, but not at the expense of people, insisted Chief Operating Officer John Mulligan:

I am an engineer by training. So it probably comes as no surprise that I'm naturally interested in machines and automation. And obviously, when our team works to optimize Target's operations, both for today and in the future, we have access to every available tool and technology: robotics, automation, machine learning, Artificial Intelligence, and more.

But when we choose to invest in technology, we're not looking to remove the human element from the Target experience. Instead, we're investing to enhance the productivity of our team members, freeing them up to focus on what's most important, like serving our guests…The choice doesn't have to be about people or technology. We can invest in both people and their productivity. 

As an example, he pointed to the firm’s pick-up and drive-up options:

In the second quarter, we added another 5,000 items to the assortment available for Pickup and Drive Up, ranging from items in adult beverages to fresh pet food, meal kits, and greeting cards. We also continue to roll out technology enhancements, including functionality to provide backup suggestions when an item is unavailable, a chain-wide rollout of numbered parking spaces for guests using Drive Up, and the ability in the app to seamlessly designate an alternate person to pick up an order.

As the Vaccine Economy’s ‘new normal’ for retail takes shape - and it’s still an evolving process - Cornell has some clear priorities ahead, beginning with picking up the store upgrading and expansion program that was understandably pulled back during the height of the pandemic:

We're going to continue to invest in re-modeling our stores…we’ve re-modeled just about half our stores to date, so you'll continue to see us invest in re-models. We've had a very strong pipeline of new stores that we'll be rolling out over the next few years. We'll continue to invest in our brands and our brand performance. You'll continue to see us continue to invest in Drive Up and Pickup and the expansion of Shipt. And we'll continue to invest in our team.

As we think about the key metrics going forward, you'll hear us talk about traffic. We felt exceptionally good this quarter about driving traffic growth of almost 13%, continuing to drive strong comps in both our stores and digital channels, and we'll continue to make sure we always are laser-focused on market share gains. So those themes will be very consistent going forward.

The investments we make in our stores, our brands, our fulfillment channels, and our team will continue to drive traffic to our stores and visits to our site, continue to drive strong comps that equate to market share gains across our entire portfolio. So that's our continued commitment for not just the next few quarters, but for years to come.

My take

While digital sales are down, digital penetration of 17% more then twice the level it was in Q2 2019 - 7.3%. The digital investment that Target has made over the years has paid off nicely. But the ‘new normal’ is starting to kick-in. The Delta variant - and others - might still have some surprises to come, but it’s clear that for retailers like Target there’s a pent-up consumer desire to get back in-store and browsing the aisles. With that in mind, the firm’s longstanding emphasis on the integration of physical and digital retail positions it well to adapt to whatever the Vaccine Consumer wants.