More stores in store as Target demonstrates (again) the value of striking the omni-channel balance in retail

Profile picture for user slauchlan By Stuart Lauchlan May 20, 2021
Summary:
Last year was all about digital, this year it's all about a return to the stores. Target's omni-channel strategy enables it to switch gears seamlessly as the Vaccine Economy opens up.

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Do we call three a trend? Following comments from the CEOs of Walmart and Macy’s earlier in the week, further seeming evidence of a return to in-store retail came yesterday from Target, the undoubted digital commerce winner of the COVID crisis.

As shoppers venture back into stores, foot fall is 17% higher than this time last year, when COVID lockdowns were at their most stringent. According to CEO Brian Cornell:

Guests are happy to come back to our stores because they love the environment we’ve created and invested in over time…Contrast that to a year ago, when the channel mix of our business was changing rapidly with guests leaning heavily into our digital fulfillment options, essentially our same-day services in the midst of a nationwide lockdown.

It’s all about that elusive omni-channel balance that continues to evade all too many retailers, but which Target has down to a fine art. Cornell noted:

These two contrasting scenarios clearly demonstrate the flexibility of our operating model. But they also show our stores and digital channels complement each other to drive guest engagement…While store sales accounted for most of our growth, first quarter digital comp sales also grew 50% on top of last year's enormous numbers. Guests turn to Target because of our stores and our digital options, not one versus the other.

For us, the distinction between store sales and digital sales is largely irrelevant. Because of our unique stores as hub model, more than three-quarters of our first quarter digital sales were fulfilled by our stores. That means, in total, more than 95% of Target's first quarter sales were driven by our store assets, store inventory and store teams.

More stores

The stores-as-fulfillment-hubs model is one that continues to pay off, according to Chief Operating Officer John Mulligan, particularly around same-day services:

Among our store services, we've long known that our same-day fulfillment options would be popular with our guests, but their growth over the last few years has been far above our expectations. This is most evident in our drive-up service where first quarter sales volume was nearly 21 times higher than it was 2 years ago, amounting to nearly $1.3 billion of incremental sales volume over that period.

He added:

We've talked about stores as hubs now for going on four years. And we have always said, we'd like it for a couple reasons - one, great guest service and two, better economics. Same-day services are that on steroids. They have much better economics than shipping something to someone's home. As we've talked about [before], the shipping expense is the biggest part of delivering something to someone's home. So if we take that out of the equation, then we end up with economics that are much closer to the store transaction.

And there will be more  - and bigger - stores to come, he said:

Beyond activity in existing stores, we're expanding our new store opening plans to more than 30 additional locations across the country this year, as we continue to find compelling opportunities in urban and dense suburban markets and on our near college campuses. In recent years, these custom formats have typically been less than 50,000 square feet. However, given the local real estate conditions in dense suburban markets, we're also finding compelling opportunities to open somewhat bigger stores between 50,000 square feet and 100,000 square feet which weren't available in the past.

My take

It’s all about the balance. Target embraced that idea years ago and has worked to put it in place ever since. That served it well during 2020 when shopping was almost entirely digital; it’s likely to serve it well now that shoppers want to wander the aisles again as the Vaccine Economy kicks in. Being able to switch gears seamlessly is the omni-channel sleight of hand that far too many retailers still struggle to pull off. Target remains the North Star for omni-aspirations in the sector.