Target’s Same-Day Digital Services Skyrocket
While Target noted a somewhat mixed fourth quarter, its same-day services soared by more than 90% in 2019 and are growing faster than shipping to home. In its next move, the retailer will add fresh groceries and alcohol into the mix.
Target is using its network of stores to fulfill same-day orders, an advantage that Amazon lacks, and the strategy is saving it a ton of money as it speeds up fulfillment time for its shoppers. Its curbside Drive Up and order pickup services are 90% cheaper than shipping from a warehouse, Target said. In 2019, order pickup grew almost 50% and its Drive Up service, which Target expanded to over 1,500 stores last summer, accounted for a 750% spike in parking lot deliveries from 2018.
With the speedy growth of Target’s online order pickup services, it’s not surprising the retailer is moving to add food and alcohol to the mix. Target announced it is adding fresh and frozen groceries and adult beverages to both its Drive Up and order pickup services starting this spring. It will start by testing fresh and frozen groceries in Minneapolis-area stores, with plans to grow the offering to almost half of its 1,800 store fleet by the holiday season. It will also begin testing adult beverage pickup in more than 100 stores in Florida and Oregon this spring, with plans to roll out alcohol pickup most stores by the end of the year.
As Target expands its same-day pickup assortment, accordingly, the retailer has been also been hard at work remodeling its stores, noting it sees a 2-4% sales lift after a remodel. Target expects to have more than 1,000 remodels complete by the end of 2020, and 200 stores will include a new electronics experience. It’s also currently testing a new front of store layout featuring lower walls and counters.
Target also announced it’s going bigger with smaller stores. This year, the big box store will open 36 more small-format stores, on top of 100 already open, in new neighborhoods like the Las Vegas Strip, The University of Iowa and Orlando near Disney World. Part of the plan is to add Drive Up to dozens more of its small-format stores. Target also said it will explore a 6,000-sqaure-foot format, which is half the size of its smallest shop.
"With eleven consecutive quarters of positive comparable sales growth, driven by healthy performance in both our stores and digital channels, Target's results demonstrate that we've built a sustainable business model that drives strong topline growth and consistent bottom line performance," said CEO Brian Cornell in a statement. "The strategic investments we've made over the past several years to elevate the shopping experience, curate our multi-category assortment at scale, and deliver ease and convenience through our fulfillment capabilities are deepening our relationship with our guest.”
While Target touts a bright future, the chain saw a mixed fourth quarter 2019. Its net income grew to $834 million, or $1.63 per share, from $799 million, or $1.52 per share, a year earlier. Adjusted earnings came in at $1.69 per share, higher than the $1.66 per share analysts were expecting, but total revenue grew 1.8% to $23.40, missing the $23.50 billion analysts had forecast.
Target shared news of disappointing holiday sales earlier this year, noting it experienced softer-than-expected performance in electronics, toys and portions of its home assortment in the holiday period. In the November/December period Target saw 1.4% comparable sales growth, slowing from 5.7% comp growth a year prior.