While other retailers have made nervous noises about the impact of the global supply chain crisis on the upcoming Holidays, Target is bucking the trend, bolstering its inventory levels by $2 billion year-on-year in anticipation of a demand uptick.
Target yesterday turned in strong Q3 numbers on the eve of the Holidays season. Total revenue of $25.7 billion grew 13.3% year-on-year with net earnings of $1.488 billion.
Other stats of note:
- Third quarter comparable sales grew 12.7% year-on-year.
- Store comparable sales increased 9.7%.
- Digital comparable sales grew 29 %.
- Same-day services (Order Pickup, Drive Up and Shipt) grew nearly 60% this year.
- More than 95% of Target's third quarter sales were fulfilled by its stores.
Store sales were the primary growth driver during the quarter, while same-day services powered digital growth, said CEO Brian Cornell:
Since the third quarter of 2019, prior to the pandemic, Q3 store sales have expanded by $3.8 billion, while digital sales have increased another $3.1 billion…within our digital capabilities, more and more of our guests are trying and embracing our industry-leading same-day services. Third quarter sales through these services have expanded by nearly 400% or $2 billion over the last 2 years. Through the first three quarters of the year, sales through these services have grown by more than $6 billion since 2019, a number larger than the total sales of many prominent retailers.
Into the Holidays
As for the Holidays, Target is ready, said Cornell:
This year, our guests have eagerly started their holiday shopping. As they respond to our Holiday promotions, low price guarantees, and our ongoing efforts to provide ease, reliability, safety, and value across every shopping experience. And importantly, we've taken multiple actions to support our guests during the Holiday season and beyond. On top of the investments in inventory, in-stocks, and value I outlined earlier, we've announced that we're hiring 30,000 new year-round supply chain team members to support our current and expected growth.
Chief Operating Officer John Mulligan added that the key is execution:
On our supply chain team, the focus is on moving the right amount of inventory to the right place at the right time. In our stores, which fulfill more than 95% of our total sales, the team focuses on delivering a great guest experience across hundreds of millions of guest transactions every quarter…In the fourth quarter, when we handle the largest volumes of the year, everything moves faster, making the need for detailed planning and precise execution even greater. That's why every year, we construct our plans with the fourth quarter in mind, so we can remove distractions and roadblocks in advance of the holiday peak.
This year the global crisis, this has brought additional pressures, he said:
Our teams have been facing additional out of the ordinary challenges as they plan for and deliver record-setting volumes while facing unprecedented bottlenecks in the global supply chain…Within our supply chain, the team has been methodically working around multiple obstacles and challenges throughout the network, prioritizing our holiday sensitive categories within our import receipts, while thoughtfully planning domestic transportation to ensure products reached the shelf at the right time.
Overall, the retailer is heading into the Holidays in “a very healthy inventory position”, said Mulligan:
A sizeable amount of this inventory will continue to flow to our stores over the next few weeks and our team has clear visibility to where the inventory is located and when it will arrive in our stores. In our overseas operations we've benefited from a significant reduction in delay times. And of course, given that we were already anticipating tight conditions many months ago, the team has been writing this year's holiday purchase orders much earlier than last year to proactively mitigate the risk of both known and unexpected delays. We're also benefiting from really strong performance across our domestic transportation network, and we've secured the necessary capacity across both rail and over-the-road trucking to accommodate anticipated shipments throughout the fourth quarter.
With goods in stock, the focus then is on ensuring a good customer experience, he explained:
In our stores, the team has been preparing for fourth quarter all year, and they are energized and ready to serve our guests throughout the season. This will be the first holiday season since we launched our new service initiative, which is all about empowering our teams and increasing their confidence to build authentic connections with our guests.
Also new this year, we've rolled out a new point-of-sale system across more than 90% of our stores, providing more speed, efficiency, and enhanced experience at both the checkout and our service counter. To continue building on our industry-leading in-store pickup in Drive Up experiences, we've been rolling out new capabilities all year.
Within digital fulfillment sales, ship-to-home increased slightly over last year, while same-day services grew about 60% on top of a more than 200% increase a year ago. Among those same-day options, both in-store pickup and Shipt grew more than 30% in Q3, while Drive Up grew more than 80% on top of more than 500% a year ago. All of that means that since 2019, sales through Drive Up have expanded more than 10x , accounting now for $1.4 billion in the third quarter alone.
Given Target's omni-channel credentials, Cornell is able to be a confident man:
We see continued momentum in the marketplace and a guest who is shopping all of our categories, utilizing both our stores and our digital channels, and we think that's going to continue throughout the holiday season. All indications are that the US consumer is looking to celebrate the holiday season, they're anxious to get together with family and friends.
We've seen a great response to seasonal activity as we look at the first 3 quarters of the year and a record Halloween season, very strong back-to-school, back-to-college, a guest that we believe is going to enjoy Thanksgiving with family and friends and is really looking forward to the holiday season, which means robust gifting throughout the season. So, we're off to a very good start.
We think that's going to continue throughout the holiday season, and we think we've made the appropriate investments in inventory.