Target hits the Holidays season with $6.5 billion in digital sales to date this year - and the busiest online quarter to come
- Target got its omni-channel transformation act in gear a long time ago - and it's paying off in spades on the back of the COVID crisis.
Our third quarter digital sales grew more than $2 billion compared with last year. For perspective, $2 billion is more than our company's total digital sales for the entire year in 2014.
That observation from Target Chief Operating Officer John Mulligan reflects not only the COVID overall ‘boost’ to retail’s shift online, but bears further testament to the US retailer’s prescience in doubling down early on digital in its operations, with online sales up 155% year-on-year. For the three months up to 31 October, the firm’s overall revenues were $22.3 billion, up $3.9 billion year-on-year, more than the total growth for the last full fiscal year.
The retailer’s hefty investment in multiple digitally-enabled fulfilment options, such as Drive Up curbside collection, Buy Online, Pick-up In Store (BOPIS) and same day delivery has also paid off as has the ongoing transformation of its 1,900 physical stores into e-commerce distribution centers.
Around 75% of digital sales were fulfiled by stores in recent months, according to CEO Brian Cornell:
Within digital, we continue to see the strongest growth in our same-day services, Pick-Up, Drive-Up and Shipt, which together grew more than 200% in the quarter. These services are fast, convenient, reliable and contactless, which explains why they continue to generate very high levels of guest satisfaction. Our financial reporting counts these same-day orders as digital. These services are entirely enabled by our stores. Specifically, same-day orders are fulfilled by our store teams, along with Shipt shoppers, who rely on store inventory and systems to deliver to the front of our stores, our parking lots or guest front doors within a couple of hours receiving an order.
This ‘store as hub’ model is the foundational element of our strategic plan we announced at the beginning of 2017, just over three years ago. Our performance for the first three quarters of 2020, which includes digital sales growth of nearly $6.5 billion and a store sales increase of more than $3.5 billion, is the direct result of our ‘store as hub’ strategy, combined with the tireless work of our team to bring it to life.
The firm has also tapped into its tech arsenal to develop a variety of COVID-friendly processes and practices to ensure health and safety for both customers and employees. Cornell explains:
These include an enhancement to our self-service lanes, which means guests no longer need to use the hand scanner to pay with their wallet function in our app. We made changes to Drive Up that eliminate the need for a team member to scan a guest phone when they deliver an order. We've rolled out a new capability on target.com, allowing guests to check in in advance to see whether we're currently metering in their store and allow them to reserve a spot in line before leaving home…To minimize lines, we've added more than 1,000 mobile checkout devices across the chain, allowing our team members to help guests check out anywhere in the store.
We're also continuing to expand the number of our merchandise categories available through our Shipt service, most recently adding kids and adult apparel. This change provides a new contactless option for guest to shop these categories and have them delivered to their front doors in as little as an hour.
Shipt is the delivery company that Target acquired back in 2017 for $550 million. As that acquisition approaches its second anniversary, it remains the smallest of Target’s same-day services, but Mulligan points to the retailer’s sales going through the operation as growing at 280% year-on-year over the past three months, representing $200 million in incremental sales. It’s a work in progress, he suggests:
It's a key part of what we're going to do here in the fourth quarter. We think you will see us throughout the fourth quarter really lean into our same-day service and Order Pick Up, Drive Up and Shipt as a way to fulfil our guest needs, and Shipt will be a big part of that.
I think beyond that, Shipt continues to experience very strong growth. They continue to add retailers. [They have] 100 national and regional retailers. They added Bed Bath & Beyond this quarter in addition to a few others. They've doubled the number of shoppers since the spring and are planning to add another 100,000 shoppers here for the fourth quarter. So, we continue to see really strong growth, and we're very pleased with Shipt's performance overall.
Despite the latest earnings report and with the Holiday season - always the strongest for digital sales at Target - to come, Cornell is cautious about 2021 and the prospects therein:
Unfortunately, don't have a crystal ball as we look to the future. We're all looking for greater certainty. But we know we're going to go into the first half of 2021 facing the continued pandemic, waiting for vaccines, looking for greater clarity around the condition of the economy and unemployment. And I think we're going to just have to make sure that we remain flexible and provide the assortment and the services and the safety that the guest is looking for from Target. We certainly expect certain trends will continue. We think guests will continue to consolidate the number of locations where they shop. We think our multi-category portfolio will continue to be very important as we serve the needs of families. We think ease and convenience, combined with safety, will continue to be important.
This is how you do omni-channel retail transformation and make it work.