Demand for next-day delivery is surging, and mega retailers like Amazon and Walmart are fighting to deliver. Then there’s Target. The retailer is seeing digital sales surge and said its ability to offer same-day services is the result of its strategy to place stores at the center of fulfillment, a tactic which has led to its success today.
After years of working on its next-day plan, CEO Brian Cornell noted Target is now seeing “a really positive guest response to our same-day digital fulfillment services, which drove well over half of our digital sales growth in the quarter.”
“I think our decision years ago to put our stores at the center of our fulfillment strategy is paying off with accelerated growth,” said Cornell.
Specifically, in Target’s Q1 2019, well over half of its digital growth was driven by same-day fulfillment options: in-store pickup, Drive-Up and Shipt. Put another way, these three services drove more than a quarter of total company comp growth of 4.8%. Store comparable sales growth of 2.7% drove just over half of the total company comp, while comparable digital growth of 42% contributed another 2.1 percentage points.
To meet this surging digital growth, Target has developed its stores into digital hubs that enhance the retailer’s speed and reduce costs.
“Clearly as we talk to the consumer, we talk to the guest, we know how important convenience and speed is and that's why several years ago, we made the decision to put our stores at the center of our fulfillment strategy, and you're seeing that pay off right now,” said Cornell.
Target stores handled more than 80% of Target’s first quarter digital volume, including all of its same-day options combined with digital orders shipped directly from stores to shoppers’ homes, Cornell noted. Digital accounted for more than $5 billion of Target sales last year and its stores fulfilled about two thirds of that volume.
“This year, given our digital growth trajectory and the rapid adoption of our same-day services, we are on track to grow Target’s digital sales by more than $1 billion in 2019 and fulfilling even higher percentages of this volume from our stores,” said Cornell. “So I want to emphasize that we’re not talking about a theory. This is reality today and it’s a meaningful and growing part of our retail business.”
According to Cornell, moving to store fulfillment has not increased the frequency of split shipments, a worry for many retailers. While Target’s store fulfillment continues to grow rapidly, the rate of split shipments this year is running lower both in Target’s stores and in total compared with last year.
However, Cornell noted, Target still has a continued opportunity to realize cost savings by reducing the frequency of split shipments even more. To this end the retailer is developing an enhanced inventory planning and control system, which is expected to deliver increased precision in Target’s inventory allocation, reducing the number of occasions when a split shipment is needed.