A mixed performance from Target, once the doyen of omni-channel retailers, as it heads into the critical Holidays season. Q3 sales fell 4.9% year-on-year - the second consecutive quarterly decline - but profits were up 36.3% on the comparable period a year ago when the firm was struggling with the negative impact of an inventory glut.
That was good enough for Wall Street, which sent the share price up on the back of the numbers, even though Target’s outlook for the Holidays season is downbeat, with a further single digits sales decline forecast. It’s also notable that physical store performance was stronger than digital in Q3. Whether that continues into the coming months remains to be seen, but Target Chief Operating Officer John Mulligan suggests a shift of focus:
In the digital channel, the percentage of orders picked and shipped on time and the average Drive-Up wait time have all improved from last year. Also in support of the digital business, the percent of items ordered but not found has declined from a year ago, meaning that we are fulfilling more items per order and canceling fewer, a key factor in guest satisfaction.
Since our goal is for Target to be the easiest place for our guests to shop, our teams have been focused on the front of store experience with the goal of providing consistently great service through the in-store checkout experience, along with drive-up and in-store pickup. And because our guests tell us they enjoy interacting with our team, since we've refocused on the front-end experience, we've seen more than a six percentage point increase in the usage of full service lanes across the chain.
For CEO Brian Cornell, there’s still a lot of turnaround work to be done, not helped by ongoing consumer behavioral issues related to the macro-economic climate:
We are not satisfied with the top-line trends we've been seeing. Our No. 1 priority is to get back to sustainable growth in both traffic and sales and we're committed to investing in long-term initiatives to deliver this growth. As we assess the external environment, it's clear that consumers have been remarkably resilient. Yet at the same time, our research indicates that themes like uncertainty, caution, managing my time and budget, and focusing on essentials while still finding ways to celebrate are all top of mind.
Overall, consumers are still spending, but pressures like higher interest rates, the resumption of student loan repayments, increased credit card debt, and reduced savings rates have left them with less discretionary income, forcing them to make trade-offs in their family budgets. For example, this year, we've seen more and more consumers delaying their spending until the last moment.
That said, Christina Hennington, Chief Growth Officer, hopes for some seasonal uplift:
Even as our guests face tough choices as they manage their budgets, they're also continuing to celebrate seasonal moments while showing their excitement for new product offerings and compelling value. After all, consumers are feeling the weight of multiple economic pressures and discretionary retail has borne the brunt of this weight for many quarters now...In the face of this mental and emotional tug of war, consumers are looking for a respite, which is why we are relentless in our pursuit to provide ease, inspiration, joy, and comprehensive value every day.
OK, nice sentiment, right out of a Hallmark Christmas movie. But how will that translate to omni-channel reality? Hennington continues:
This focus on celebrating the season creates an engaging experience that keeps Target top of mind. That's why we continue to offer events like our latest Target Circle Week in early October, which added another 500,000 members to our loyalty platform, providing future opportunities to engage with these guests in deeper ways. Our goal this Holiday season is to create the perfect combination of incredible value, inspiring and fresh products, and a joyful shopping experience as you still the aisles in our stores or on the recently refreshed Target website and app. We aim to deepen the relationships with our guests as they look to deck the halls and celebrate the joys that the Holidays bring…
Our plans start with a celebratory experience that you feel the moment you walk into our stores or open the Target website or app, featuring on-trend and inspiring color pallets, imagery, and in-store marketing that complements all the excitement enjoy, we are creating with our national marketing campaigns. Guests will feel the holiday spirit before they even add their first item to the cart. The excitement builds with our assortment at unbeatable value only a Target-exclusive merchandise and our easy and convenient Holiday solutions.
…as we get the digital business growing again…
A rather telling comment from Mulligan, one that might have been seemingly unthinkable a a few years ago.
Target’s been on the receiving end of some tough hits from the wider retail climate. I was shocked on my last visit to the US to find intimidating security guards at the top and bottom of the escalator in the main San Francisco store. Once past them, having basic goods locked away on the shelves did not make for an enjoyable customer experience of the type that Hennington seems to have on her Christmas list.
There are ‘Doom Loop’ factors at play here, of course, but if Target consumers are leaning back into the physical side of the omni-channel mix, then something needs to be done about this. This is clearly going to be a very important Holiday season for Target and its long-term strategic direction.